IMF sees global economy maintaining expected growth

busThe International Monetary Fund is leaving its projections for global output growth unchanged at 3.5 per cent this year and 3.6 per cent in 2018, according to the quarterly update of the IMF’s forecast.

“The recovery in global growth that we projected in April is on a firmer footing,” said Maurice Obstfeld, chief economist at the Washington-based crisis lender. “There is now no question mark over the world economy’s gain in momentum.”

Recent data including faster growth in trade suggested that the world economy was entering its “broadest synchronised upswing” of the last decade, he said.

The IMF projects global trade growth approaching four  per cent in 2017-18, outpacing the world economy and well ahead of the 2015-16 trade growth of less than 2.5 per cent.

In the revision issued from Kuala Lumpur of its World Economic Outlook, the IMF raised its forecasts across the eurozone, as well as for emerging and developing Europe, China and Canada.

The most important lowered outlook was for the United States, where the IMF slashed its expectations for expansionary federal budget policies, as President Donald Trump’s plans for tax cuts and infrastructure projects have yet to gain traction in Congress.

The revised IMF forecast is for US output to expand by 2.1 per cent this year and next; three months ago, the outlook for 2017-18 was 2.4 per cent.

The IMF significantly pared its expectations through 2018 for Saudi Arabia, Brazil and Britain.

“The ultimate impact of Brexit on the United Kingdom remains unclear,” Obstfeld said.

The IMF said that upside and downside risks to the world economy in the near term are broadly balanced.

The cyclical upswing in Europe could outperform expectations. On the down side, share prices are high across advanced economies, and China’s expansionary policies pose some risk to financial stability.

The US Federal Reserve’s gradual move to raise interest rates and take cash out of bond markets, and the potential for normalising monetary policies in other rich countries, could risk over-tightening of financial conditions.

“Core inflation pressures remain low in advanced economies, and measures of longer-term inflation expectations show no indications of upward drift beyond targets, so central banks should continue to proceed cautiously,” Obstfeld said.

The IMF noted that global oil prices have fallen in recent months, further dampening inflation.

Despite confidence about growing output, growth in both advanced economies and commodity-exporting countries remains below the average enjoyed before the 2008 financial crisis.

Obstfeld warned that rising inequality and weak wage growth, despite falling unemployment, “carries risks of exacerbating social tensions that have already pushed some electorates in the direction of more inward-looking economic policies.”

“The threat of protectionist actions and responses remains salient in the near and medium terms,” he warned.

The IMF estimated global growth at 3.4 per cent in 2015 and 3.2 per cent last year.

 

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