IMF cuts global growth forecasts yet again

The International Monetary Fund has once again lowered its global growth forecast.


In its latest World Economic Outlook, the IMF warns chronic weakness has left markets vulnerable to shocks and sharp devaluations.

Global growth of 3.2 per cent is expected this year, with a rate of 3.5 per cent expected in 2017.

The IMF’s Chief Economist, Maurice Obstfeld, says it’s a gloomy picture that highlights a need for more coordinated global action.

“Global growth continues but at an increasingly disappointing pace that leaves the world economy more exposed to negative risks. Growth has been too slow for too long.”

Geopolitical shocks and political discord are cited as key reasons for the 0.2 per cent downward revision from the Fund’s January forecast.

The IMF is demanding what it’s calling an “immediate and proactive” response from governments and central banks.

That response, it says, could include increased government budget stimulus, structural reforms aimed at boosting the competitiveness of economies, as well as further monetary policy support.

Australia’s economic growth is predicted to remain at 2.5 per cent in 2016 before lifting in 2017 to 3 per cent, thanks to a lower dollar.

Japan has had its forecast cut by half, to 0.5 per cent, while China’s growth is forecast slightly higher, to 6.5 per cent this year.

Mr Obstfeld says the IMF still has concerns about long-term economic growth in China.

“We worry about the quality of growth more than the quantity of growth. And if the quality of growth is lower in the short run, even though the quantity of growth is higher, you might think that the longer term growth will be will be lower and that’s that’s where the concerns that we have would would come into play in the longer term forecast.”

The IMF expects Brazil’s economy to shrink by 3.8 per cent in this year.

It was previously forecast to shrink by only 3.5 per cent.

White House spokesman Josh Earnest says the United States is prepared to work with Brazil as it struggles through its worst recession in decades.

“It’s in our interest to see their [Brazil’s] economy strong. It’s in our interest to see the country’s economy develop in a way that they can continue to be an important trading partner with the United States.”

Among the risks the IMF is citing are the Syrian refugee crisis, the prospect of severe flooding and drought from the current El Nino and the rise of nationalism in Europe.

And it says a so-called ‘Brexit’, or British Exit, from the European Union could do severe regional and global damage by disrupting established trading relationships.

British Chancellor George Osborne says the IMF warning is significant because it shows there’s already been a negative impact on the British economy.

“They say if we were actually to leave the EU, there would be a short term impact on stability and a long term cost for the economy. So this is the clearest independent warning of the taste of things to come if we leave the EU. I think we’re much better off if we stay in the EU – that would make Britain stronger, safer and better off.”

Former British Chancellor Lord Lamont says it’s important to reflect on the motivations of the I-M-F when considering its recommendations.

“The IMF is an important organisation but it’s very closely connected to the European Union: its managing director is a former French finance minister, it’s bound to reflect their views. At the end of the day this is just a matter of opinion.”