IMF cuts global growth forecast again

Workers making a casting mould at the Tomiwa Chuzo foundry in Japan. The International Monetary Fund cut Japan’s growth forecast in half to 0.5 per cent this year while forecasting growth of 3.2 per cent for the global economy. Its previous forecast was 3.4 per cent in January. PHOTO: BLOOMBERG

WASHINGTON • The International Monetary Fund (IMF) cut its global growth forecast for the fourth time in the past year yesterday, 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 per cent this year compared with its previous forecast of 3.4 per cent 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.

It 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. "Persistent slow growth has scarring effects that... reduce potential output and, with it, demand and investment."

The IMF cut Japan's growth forecast in half to 0.5 per cent this year and raised China's growth forecast slightly to 6.5 per cent this year and 6.2 per cent next year, partly due to previously announced policy stimulus.

But the IMF said it expects China's growth to weaken as it becomes a consumer-driven economy.

Meanwhile, the United States, one of the relative bright spots in the global economy, also saw its 2016 growth forecast cut to 2.4 per cent from 2.6 per cent. The IMF said it anticipated an increased drag on US exports from a stronger dollar, while low oil prices would keep energy investment weak.

Mr Obstfeld said that global growth could easily weaken from the latest IMF forecasts which could reinforce a deflationary spiral of weak growth that erodes future output potential.

He also noted that persistently lower growth could reinforce a sense of economic inequality and encourage nationalistic, protectionist policies, particularly in the euro zone area, which could also reduce potential.

REUTERS

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A version of this article appeared in the print edition of The Straits Times on April 13, 2016, with the headline IMF cuts global growth forecast again. Subscribe