Business World

Sunday 25 February 2018

IMF review downbeat as world economies remain sluggish

Colm Kelpie

Colm Kelpie

What's the state of the world economy, according to the International Monetary Fund?

Spluttering, and at constant risk of relapse into another bout of long-term ill health, it seems. There's a sense of exasperation in the tone of the global fund's latest economic assessment, as it cut its growth forecasts for the second time this year yesterday. Eight years after the onslaught of the financial crisis and recession, the deteriorating picture painted by the IMF is one of a global recovery that's uneven. It is forecasting a modest pickup in advanced economies, while emerging markets will slow, primarily reflecting weakness in some large emerging economies and oil-exporting countries. The IMF's newly appointed chief economist, Maurice Obstfeld, was a little downbeat when he said the "holy grail of robust and synchronised global expansion remains elusive."

What's behind the downgrade to the forecasts?

The slowdown in emerging markets driven by weak commodity prices forced the Washington-based lender to cut its global growth rates. The strength of the recovery differs from country-to-country, with Brazil and Russia's economies contracting, Japan and the Eurozone struggling to impress, and long-time growth engine China decelerating. Meanwhile, the US economy is nearly strong enough for central bankers to consider raising interest rates.

Do you mean we're in a prolonged period of stagnation?

The IMF said that while growth is expected to increase next year, especially in North America, medium-term prospects remain subdued, reflecting a combination of lower investment, unfavourable demographics, and weak productivity growth.

What does the IMF say about Ireland?

Not much, except in terms of numbers. Unlike its global forecast, the fund upgraded its growth projections for Ireland by 0.8 percentage points to 4.8pc from its assessment of the Irish economy in June. Given the fact that most economists are putting our GDP growth rate this year at around 6pc, that seems fairly conservative.

Overall, is the IMF suggesting any action?

It advised emerging markets to be ready for the US to hike interest rates, urged advanced economies to address "crisis legacies" and suggested nations consider the "compelling" case for public infrastructure investment at a time of very low long-term interest rates.

In terms of the Fed's interest rate move, it also warned the Washington-based body not to hike prematurely, with rate increases to be gradual.

Irish Independent

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