An image of the globe © 123RF
An image of the globe © 123RF

IMF cuts global growth forecast to 3.2%

13 April 2016

The International Monetary Fund (IMF) downgraded its 2016 global growth forecast from 3.4% to 3.2% on Tuesday, as it warned about the risk of creeping stagnation.

In its latest World Economic Outlook, the IMF said the forecast cut – its fourth in the past year – was a result of the continued slowdown and rebalancing in China, a further drop in commodity prices, as well as a general weakening in investment and trade.

Non-economic factors, such as ongoing geopolitical tensions and political instability were also contributing factors in what it called a “subdued outlook for the world economy”.

The IMF also issued a stark warning over the potential risks of a UK vote to leave the EU on June 23. In a blow to the pro-exit campaign, IMF chief economist Maurice Obstfeld warned the referendum had already created uncertainty for investors. “A Brexit could do severe regional and global damage by disrupting established trading relationships.”

Elsewhere in the report, a persistent drop in commodity prices, in particular oil, was singled out as a key risk to the fragile global economy. In 2015, the price per barrel plummeted by $47.2, with a further drop of $31.6 projected in 2016.

“With renewed declines in commodity prices, emerging market and developing economies that are heavily reliant on commodity exports are confronting a significant deterioration in their fiscal and external positions,” said the report.

“Given that commodity prices are projected to stay low over an extended period, these countries will need to make sizable adjustments to domestic spending.”

The gloomy outlook extended to growth projections across a number of different regions. The forecast for China dipped to 6.5% for 2016, down from 6.9% last year, while growth for sub-Saharan Africa was from 3.4% to 3%.

Bucking the trend, the growth forecast for the ASEAN 5 (Indonesia, Malaysia, Philippines, Thailand and Vietnam) nudged up slightly to 4.8%, from 4.7% actual growth in 2015. Meanwhile, growth for the Middle East and North Africa is projected at 2.9% for 2016, up from 2.3% last year.

Commenting on the report Obstfeld said that “growth has been too slow for too long”.

“Lower growth means less room for error. Persistent slow growth has scarring effects that...reduce potential output and with it, demand and investment.”

Obstfeld went on to acknowledge that the latest forecast could reinforce the spiral of weak growth the report warns against, a phenomena he calls “secular stagnation”.

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