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The IMF downgrades global growth again
The fund sees danger in the economic doldrums
Apr 12th 2016
IS THERE a global economic crisis on the horizon? Probably not. Is the world in
danger of falling into recession? Not soon. Yet the IMF s latest forecast
update, part of its twice-yearly World Economic Outlook , is nevertheless
resolutely downbeat. Speaking in Washington, DC, the fund s chief economist,
Maurice Obstfeld, outlined yet another set of downgrades to its global GDP
growth projections. It is more likely that the next forecast revision will
again be down, not up. One of the big risks to the world economy, he said, is
from non-economic factors, fund-speak for grubby politics. A world economy
heading for the growth doldrums, he cautioned, might be a politically perilous
place.
The actual forecast numbers are far from horrible. The fund nudged down its
global growth projection for 2016 from 3.4% to 3.2%. That is still a shade
faster than growth in 2015. The revisions are broad-based: America, Europe and
the emerging world as a bloc all saw similar downgrades (see chart). The
forecast for sub-Saharan Africa was pared back the most, in large part because
of a gloomier outlook for oil-rich Nigeria, the continent s largest economy.
The recent recovery in crude prices will take some pressure off oil producers,
but probably though we won't be seeing prices at the $100 a barrel level for
some time, if ever, said Mr Obstfeld. Of biggish economies, only China escaped
a downgrade. The fund is more confident than it was in January that stimulus
measures there will work. But short-term optimism could not mask enduring
worries about China further out. There is a concern about the quality of China
s growth, said Mr Obstfeld, as fresh credit is directed towards sputtering
industries.
The scenario the fund seems most concerned about is a steady slide in global
GDP growth that feeds on itself (by discouraging investment), only to
exacerbate political tensions, which in turn makes fixing the economy even
harder. Brazil shows how a bad economy can be made worse by political
paralysis. Low growth might add to the rising tide of inward-looking
nationalism in the rich world, said Mr Obstfeld. Politics in America is moving
against free trade. And for once, Greece is not the biggest risk factor in
Europe. The refugee crisis in the European Union has already put pressure on
its open-borders policy; there is a real possibility that Britain might leave
the EU.
The IMF has some familiar remedies for what ails the global economy: keep
monetary policy loose, augment it with fiscal stimulus where possible, and add
some pro-growth reforms to the mix. Such action is needed to insure against the
downside risks the fund identifies. But the world should also now be making
contingency plans for a co-ordinated response if a financial shock hits. There
is no longer much room for error, said Mr Obstfeld, with a certain weariness.