IMF Reduced Projected Growth Further

April 12, 2016

New economic growth forecasts were unveiled today ahead of the spring 2016 IMF/World Bank meetings.  The latest World Economic Outlook, which is prepared quarterly, downgrades projected baseline 2016 growth for the world, the aggregated groups of all advanced economies and those that are developing or emerging, as well as for most individual countries including the United States, Euroland, Japan, Britain, Japan, China, Brazil, Russia and South Africa.  Moreover, the report observes an “ever slowing and increasingly fragile pace of recovery” and concludes that “risks of weaker (than baseline) growth scenarios are becoming more tangible.”  The report advises authorities in advanced economies to pursue “growth-friendly fiscal policies where adjustment is needed and fiscal stimulus where space allows” and asserts that “accommodative monetary policy remains essential where output gaps are negative and inflation is too low.”

The World Economic Outlook released three months ago in January had cut projected global growth by 0.2 percentage points (ppts) to 3.4%.  Today’s report lops off another 0.2 ppts to 3.2% and puts likely 2017 growth at 3.5%, down from 3.6% in the January report and 3.8% assumed last October. 

Forecast economic growth in the United States has been lowered to 2.4% this year from 2.6% assumed in January and 2.8% assumed last October.  The projection for the eurozone is now 1.5%, in comparison to forecasts of 1.7% last October and January.  Japanese growth in 2016 has been halved to 0.5%.  As for next year, the WEO predicts GDP growth of 2.5% in the U.S., down from 2.6% assumed in January and 2.8% penciled into the October 2015 report.  The Euroland and Japanese economies are now expected to expand 1.6% and contract 0.1%, respectively.  Britain is forecast to grow 2.2% in 2016 and 2017, while Canadian growth of 1.7% this year is seen accelerating to 2.1% in 2017.

Among developing economies of special interest, projected Chinese growth was lowered to 6.5% this year and 6.2% in 2017, and India’s claim to fastest growing big emerging market solidifies with GDP expanding 7.5% in each year, same as assumed in the past two World Economic Outlooks.  GDP in both Brazil (-3.8%) and Russia (-1.8%) are seen contracting more quickly than assumed in January, and officials in January were more pessimistic than they had been in October. 

The report notes that plunging asset markets in the first couple of weeks of 2016 have reversed somewhat but sets the more dire world economic prognosis in a landscape of “increasing financial turbulence.”  The two dynamics feed on one another.

Copyright 2016, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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