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Thursday 8 December 2016

IMF downgrades forecast for global growth as China data shows weakness

Published 19/01/2016 | 10:34

Christine Lagarde
Christine Lagarde

The International Monetary Fund has downgraded its forecast for global growth once again, as data shows China’s economy grew at its weakest pace in 25 years.

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In an update to its World Economic Outlook, published this morning, the Washington-based fund said pickup in global growth is weak and uneven across economies, with emerging markets and developing economies set for slower growth.

It comes amid a turbulent start to the year on global markets, concern about the world economy on the back of weaker demand and a slowdown in China and oil plunging to 13-year-lows at under $28 per barrel.

The Standard & Poor's 500 Index of stocks is off to its worst start to a year on record.

Separate data showed the world’s second biggest economy grew by 6.9pc last year, capping a tumultuous year that witnessed a huge outflow of capital, a slide in the currency and a summer stocks crash.

That’s the slowest growth rate the country has seen in a quarter of a century.

The IMF said advanced economies will see a modest recovery this year, while emerging market and developing economies “face the new reality of slower growth”.

The Fund projects global growth of 3.4pc this year, down from 3.6pc in October, and 3.6pc in 2017, down from 3.8pc.

“This coming year is going to be a year of great challenges and policymakers should be thinking about short-term resilience and the ways they can bolster it, but also about the  longer-term growth prospects,” said Maurice Obstfeld, IMF Economic Counsellor and Director of Research.

”Those long-term actions,” he continued, “will actually have positive effects in the short run by increasing confidence and increasing people's faith in the future.”

Growth in advanced economies is projected to rise to 2.1pc and hold steady in 2017, a slightly weaker pick-up than that forecast in October.

The IMF said that overall, activity remains robust in the United States.

“But there are also challenges stemming from the strength of the dollar, which is causing the US manufacturing sector to shrink marginally,” the Fund said.

The Fund said that growth prospects in parts of Asia have diminished as a result of the “unexpectedly big external spillovers from China’s growth transition”.

India will, however, continue to grow at the fastest pace among emerging economies.

The IMF estimates the global economy grew 3.1pc last year, the weakest pace since the 2009 recession.

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