IMF cuts global growth forecast from 3.4 to 3.2%

Apr 12, 2016, 11:45 AM EDT
IMF director Christine Lagarde.
(Source: Jack Roberts/flickr)

The IMF cut its global growth forecast from 3.4 to 3.2%, warning of stagnation.

Reuters reports:

The International Monetary Fund cut its global growth forecast for the fourth time in the past year on Tuesday, citing China's slowdown, persistently low oil prices and chronic weakness in advanced economies. The Fund, whose spring meetings along with the World Bank will be held in Washington this week, forecast that the global economy would grow at 3.2 percent in 2016 compared to its previous forecast of 3.4 percent in January. In its latest World Economic Outlook, the Fund warned of widespread stagnation risk and said weaker growth could leave the global economy more vulnerable to shocks such as currency depreciations or worsening geopolitical conflicts. The Fund called on global policymakers attending the IMF and World Bank meetings to take coordinated actions to boost demand with structural economic reforms, fiscal stimulus where possible and accommodative monetary policy. "Lower growth means less room for error," IMF chief economist Maurice Obstfeld said in a statement. "Persistent slow growth has scarring effects that...reduce potential output and with it, demand and investment."

The Wall Street Journal notes:

The downward revision is the fourth straight cut in a year, putting world economic growth just a hair over last year’s 3.1% and only marginally above the 3% rate the IMF has previously considered a technical recession globally. “Consecutive downgrades of future economic prospects carry the risk of a world economy that reaches stalling speed and falls into widespread secular stagnation,” IMF Chief Economist Maurice Obstfeld said in the fund’s flagship report. The increasingly dour outlook sets the tone for the semiannual IMF and World Bank meetings this week in Washington, where financial leaders from around the globe will gather to take stock of the global economy. Recessions in Russia and Brazil are proving to be deeper and longer than the IMF anticipated after political problems compounded the effects of a plunge in commodity prices. Dozens of other oil exporters—from Venezuela to Canada, Saudi Arabia to Nigeria—are also facing sharp slowdowns. The IMF upgraded China’s growth forecast this year by 0.2 percentage point to 6.5% as the service sector compensated for a downturn in manufacturing. But the country’s deceleration continues to hit trade partners around the world. Jitters about the fate of the world’s second-largest economy have roiled global markets in the last year.

CNBC writes:

Obstfeld said both the U.S. and Europe faced a backlash at home against international economic integration — as seen in the rise of euroskeptic parties in the European Union (EU) and the isolationist policies of some U.S. presidential candidates . This trend threatened to halt or reverse 70 years of increasingly open trade, he warned. The EU's open borders between member countries were also under threat, Obstfeld added, due to both economic pressures and the influx of refugees from the Middle East. "Continuing violent instability in a number of countries, notably Syria, continues to crater their economies, driving millions of refugees to surrounding countries as well as to Europe. This is a humanitarian disaster," the economist said at the conference. "It has challenged the European Union's capacity to preserve open internal borders and as the incidence of terrorism has increased, the strains have only grown. Coupled with other, economic, pressures, the result in Europe has been a rising tide of inward-looking nationalism." He said one manifestation of this was the possibility the U.K. might vote to leave the EU in the referendum the country is holding in June 23. This would damage a wide range of trade and investment relations, Obstfeld said.

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