At 3.2%, growth in 2016 was the weakest it has been since the global financial crisis but is expected to rise to 3.6% this year and 3.7% in 2018, according to the biannual World Economic Outlook.
But the recovery is not complete and “while short-term risks are broadly balanced, medium-term risks are still tilted to the downside”, the report said.
There was a pick-up in growth in most western countries, except the UK where economic activity slowed down more than expected in the first half of 2017. However, increased policy uncertainty and geopolitical tensions “could take a toll on market confidence, resulting in tighter financial conditions and weaker asset prices,” the WEO added.
The IMF also stressed the importance of completing the economic recovery and adopting strategies to ensure fiscal sustainability while the “times are good”.
Maurice Obstfeld, IMF economic counsellor and director of research, said in an IMF blog: “These gaps in the recovery challenge policymakers to action – action that should take place now, while times are good.
“If the strength of the current upswing makes the moment ideal for domestic reforms, its breadth makes multilateral cooperation opportune. Policymakers should act while the window of opportunity is open.”
The WEO said the global economy is experiencing a “welcome cyclical upturn after disappointing growth” in recent years but warned of the low inflation in many countries.
This means central banks have little room to respond to economic weakness by cutting interest rates.
Risks to the growth in the medium term include: tightening of global financial conditions, turmoil in emerging market economies, low inflation in advanced economies, a decrease in financial regulation improvements since the crisis, and noneconomic factors such as political tensions, discord and corruption.
Several countries had their growth forecast upgraded, including Canada, Russia and Brazil. India’s economy is expected to see strong growth at close to 7% this year.
Developing and emerging economies were marked up by 0.1% for 2017 and 2018 relative to April. China’s 2017 growth forecast was raised to 6.8%, compared to 6.6% in April.
