In its latest World Economic Outlook, released ahead of its annual spring meeting in Washington DC, the fund revised down its 2016 global growth projection to a “modest” 3.2%, a further 0.2% reduction than that in its January forecast.
Presenting the outlook today, IMF chief economist Maurice Obstfeld said this reflects an across-the-board slowdown and “increasingly disappointing pace” of growth that has “been too slow for too long”.
“Our projections,” he noted, “continue to be progressively less optimistic over time.”
The IMF said a small increase to 3.5% growth in 2017 was contingent on stronger conditions in emerging market economies – a scenario that is looking ever less likely to come to fruition.
“The projected pickup in growth in 2017 and over the rest of the forecast horizon hinges crucially on rising growth in emerging market and developing economies,” the IMF’s report said.
“In the current environment, the likelihood that this central scenario will materialise has weakened, as risks of weaker growth have become more salient.”
Poor growth in advanced economies, which are still plagued by legacies left over from the financial crisis, such as low productivity, a protracted period of low oil prices, and a sharper than expected slowdown in China are all among the risks to the current outlook.
However, if currently stressed emerging markets can normalise and China can successfully rebalance its economy away from manufacturing and towards services without too many hiccups, the global economy might finally live up to expectations in 2017.
This however will also require a pickup in activity from commodity exporters and resilient growth across the board in emerging and developing economies, which are the drivers of growth now and will head any rise in growth next year.
Growth in advanced economies on the other hand remains sluggish. Activity slowed during the second half of 2015, with asset price declines and far tighter financial conditions, and unfavourable demographic trends and financial crisis legacies continuing to hamper a more robust recovery.
Obstfeld said the most worrisome threats to the already weak outlook include further bouts of financial volatility, continuing conflict in a number of countries, notably Syria, and the subsequent fallout affecting the region and beyond.
“Coupled with other, economic, pressures, the result in Europe has been a rising tide of inward-looking nationalism,” he said.
“One manifestation is the real possibility that the UK exits the European Union, damaging a wide range of trade and investment relationships.”
The United States is also in the middle of a backlash against cross-border economic integration, he added, threatening to halt or even reverse the trend towards open trade, while several large emerging economies face deep contractions due to internal political strife, or geopolitical pressures.
“The weaker is growth, the greater the chance that the preceding risks, if some materialise, pull the world economy below stalling speed,” he stressed.
“With its downside possibilities, the current diminished outlook calls for an immediate proactive response. To repeat: there is no longer much room for error.”
Obstfeld said policymakers should focus on two tasks: strengthening growth and making contingency plans for a future where potential risks do materialise.
Both will require a three-pronged approach, he continued, consisting of accommodative monetary policy supported by fiscal and structural measures.
“By clearly recognising the risks they jointly face and acting together to prepare for them, national policymakers can bolster confidence, support growth and guard more effectively against the risk of a derailed recovery,” he said.
