IMF revises down growth prediction to 3.5%

20 Jan 15
The International Monetary Fund has downgraded its forecast for global growth this year to 3.5%, down 0.3% on its October predictions.

Growth expectations for 2016 have also been trimmed to 3.8%, the fund stated in the latest edition of its World economic outlook.

Lower oil prices will stimulate more growth in advanced economies that import it, but this will not be enough to offset other negative factors across the globe, particularly by weaker investment prospects in emerging economies.

This commodity fall has introduced external and balance sheet vulnerabilities in oil exporter countries, like India where the government subsidises energy consumption, and so the savings tend to fall into public funds.

But even with those reductions, the world economy will be growing faster than it did in 2014, the IMF said.

However, stagnation and low inflation are still concerns in both the eurozone and in Japan, while geopolitical risks remain a concern in Russia.

The US is the only major economy for which growth projections have been raised to exceed 3% in 2015/16.

The UK is expected to grow by 2.7% this year, unchanged from the fund’s October forecast.

Olivier Blanchard, the IMF’s director of research, said: ‘The recovery in the US is quite strong and therefore it will continue, despite the appreciation of the dollar.

‘New factors supporting growth – lower oil prices, but also depreciation of the euro and yen — are more than offset by persistent negative forces, including the lingering legacies of the crisis and lower potential growth in many countries.’

Growth in the EU has been downgraded and is now expected to reach 1.2%, down 0.2% from October.

A weaker outlook for Russia is reflected by the economic impact of sharply lower oil prices and increased geopolitical tensions. The economy is expected to contract by 3% in 2015.

China is expected to grow by 6.8%, a 0.3% reduction from October’s forecast. This follows on official data released yesterday showing that Chinese growth slowed to 7.4% in 2014, the country’s lowest level in 24 years.

Advanced economies as a group are forecast to expand by 2.4% in 2015, and at the same rate in 2016. Growth in emerging markets and developing economies is forecast to slip to 4.3% from an estimated 4.4% in 2014, but then recover to 4.7% in 2016.

Last week, the World Bank, similarly revised down its outlook for the world economy in 2015, predicting a slightly lower growth of 3% this year. 

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