World Economy

IMF Again Cuts Global Growth Forecast

IMF Again Cuts Global Growth Forecast IMF Again Cuts Global Growth Forecast

A prolonged period of slow growth has left the global economy more exposed to negative shocks and raised the risk that the world will slide into stagnation, the IMF warned.

The International Monetary Fund cut its world expansion forecast, as weak exports and slowing investment dim prospects in the US, a consumption-tax hike saps growth in Japan, and a slump in the price of everything from oil to wheat continues to hobble commodities producers. The world economy will grow 3.2% this year, down from a projected 3.4% in January, the IMF said in a quarterly update to its World Economic Outlook, Bloomberg reported. The growth estimate also was lowered in July and October of last year.

The weaker outlook is likely to weigh on finance ministers and central bankers from around the globe, who gather in Washington this week for spring meetings of the IMF and World Bank, as well as a Group of 20 session. The fund also cut its forecast for growth in 2017 to 3.5%, down from 3.6% three months ago.

“Growth has been too slow for too long,” IMF chief economist Maurice Obstfeld said. “There is no longer much room for error.”

“But by clearly recognizing the risks they jointly face and acting together to prepare for them, national policymakers can bolster confidence, support growth, and guard more effectively against the risk of a derailed recovery,” he said.

The IMF cited among the biggest risks as a “return of financial turmoil itself, impairing confidence and demand in a self-confirming negative feedback loop.”

   Scarring Effects

“Another threat is that persistent slow growth has scarring effects that themselves reduce potential output and with it, consumption and investment,” the IMF said. “Consecutive downgrades of future economic prospects carry the risk of a world economy that reaches stalling speed and falls into widespread secular stagnation.”

“The secular stagnation scenario that one would worry about is one with steadily declining growth, which helps push investment even further down than it’s been,” Obstfeld told reporters at a press briefing in Washington. “We definitely face the risk of going into doldrums that could be politically perilous.”

While growth forecasts for the US and eurozone were marked down by 0.2 percentage point, the deepest reductions in advanced economies came in Japan.

The IMF cut its expansion estimate for the nation in half for 2016, to 0.5%, and projects a 0.1% contraction in 2017, compared with a previous forecast for 0.3% growth. The fund cited recent strengthening of the yen and weaker emerging-market demand for the forecast cut, and the scheduled consumption-tax increase for the 2017 slide.