World Economy

IMF Trims Global Outlook

IMF Trims Global OutlookIMF Trims Global Outlook

The International Monetary Fund cut its global economic growth forecast for 2016 on Tuesday as it expects a number of factors to weigh on world economies.

Global growth for this year is seen at 3.4%, up from a 3.1% forecast for 2015, but 0.2% lower than previously forecast, the IMF’s World Economic Outlook report said, CNBC reported.

The IMF said “pickup in global activity is projected to be more gradual than in the October 2015 World Economic Outlook, especially in emerging market and developing economies.”

The organization cited slower growth in emerging markets, especially in China, falling commodity prices, and rising interest rates in the US as potential risks to global growth.

Weak Chinese manufacturing data—coupled with plunging commodity prices—have sent equity markets around the world into flux.

 Worst Start for US

The three major US indexes are off to their worst start in history, having fallen into correction territory, or down at least 10% from their 52-week high. Year to date, the Dow Jones industrial average and the benchmark S&P 500 index have fallen about 8%, while the Nasdaq composite has lost over 10%.

US oil prices have plunged nearly 20% in 2016 amid oversupply concerns. “Lower oil prices strain the fiscal positions of fuel exporters and weigh on their growth prospects, while supporting household demand and lowering business energy costs for importers, especially in advanced economies, where price declines are fully passed on to end users,” according to the IMF.

Regarding US monetary policy, the IMF said it still remains “very accommodative,” but that the possibility of future rate hikes “have contributed to tighter external financial conditions, declining capital flows, and further currency depreciations in many emerging market economies.”

The Federal Reserve, the US central bank, raised rates for the first time in nearly a decade last month and has said it will remain “data dependent” when determining future rate hikes.

Continued market upheaval also could help drag growth lower if it leads to major risk aversion and currency depreciations in emerging markets, the IMF said in the report. It said other risks included further dollar appreciation and an escalation of geopolitical tensions.

The fund said the outlook for an acceleration of US output was dimming as dollar strength weighs on manufacturing and lower oil prices curtail energy investment. It now projects US economic growth at 2.6% for both 2016 and 2017, down 0.2 percentage point in both years from the October forecast.


The IMF kept its growth forecast for India unchanged at 7.5% in 2016-17. “India and the rest of emerging Asia are generally projected to continue growing at a robust pace,” the report said.

In 2015-16, India is estimated to grow 7.3%. During the first half of the fiscal year 2015-16 (April-September), India’s economy grew 7.2%.

Without naming India, IMF said policymakers in emerging market and developing economies need to press on with structural reforms to alleviate infrastructure bottlenecks, facilitate a dynamic and innovation-friendly business environment, and bolster human capital.

“Deepening local capital markets, improving fiscal revenue mobilization, and diversifying exports away from commodities are also ongoing challenges in many of these economies,” it said.

 Other Regions

In Europe, lower oil prices will help support private consumption, so the IMF said it added 0.1 percentage point to its 2016 eurozone growth forecast, bringing it to 1.7%, where it will remain for 2017.

Brazil will stay mired in recession in 2016, with output contracting 3.5%, a 2.5 percentage-point downward shift from the previous forecast, and there will be essentially no growth in 2017 as Latin America’s largest economy struggles with lower Chinese demand.

IMF economic counselor Maurice Obstfeld said the fund was encouraging monetary policy to remain expansive in some countries, such as Japan and in Europe. “Where there is fiscal space, more infrastructure spending is certainly something that should be on the table,” he added.

Russia will remain in economic recession throughout 2016, dragging with it the economies of the countries from the Commonwealth of Independent States, due to low oil prices and continuing sanctions, the report said.

South African economy will barely grow in 2016, revising its forecast to just 0.7% from its 1.3% estimate published in October, a 0.6 percentage point downward revision, IMF said.