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Afghanistan: Revised IMF forecasts signal gloom on global economic outlook

2015/01/20

Low oil prices will not provide a sufficient updraught to dispel the clouds hanging over the world economy, the International Monetary Fund said on Tuesday.
In a sign of its increasing gloom about the medium term economic outlook, the IMF cut its world economic increase forecasts by 0.3 % points for both 2015 and 2016, despite believing cheaper oil represents a “shot in the arm”.

Although the fund still believes the world economy is likely to grow 3.5 % this year, close to the average rate over the completed 30 years, it had hoped for a period of much faster increase to recoup some of the output lost in the financial and economic crisis of 2008-09.
Notably, it as well downgraded the increase estimate for China by 0.5 % points next year which, if realised, would leave its economy growing additional slowly than India’s. Ahead of official Chinese increase figures on Tuesday, the fund thinks the country’s economy will expand 6.8 % in 2015 and 6.3 % for 2016.

Christine Lagarde, IMF managing director, described the world increase outlook as “too low, too brittle and too lopsided” last week as the fund was putting the final touches to its forecasts.
In December, the IMF expected lower oil prices to boost underlying world increase rates by between 0.3 and 0.8 % points. The cut in the in general forecasts highlights the extent to which it has become additional pessimistic.

The update to the fund’s World Economic Outlook, which revises the major forecasts from October, displays a deep concern that the downbeat mood is set to continue.
The weaker outlook in most nations stems from “investment weakness as adjustment to diminished expectations about medium-term increase continues in a lot of advanced and emerging market economies”, it says.

Having incorporated the 55 % decline in oil prices since September, a rise in the price of the dollar and these weaker medium-term prospects, the IMF believes the world economy will grow 3.5 % in 2015 and 3.7 % in 2016.

Inclunding China, there were large downgrades to the increase forecasts for Russia, Brazil, the Middle East and Africa.
Russia is set for a deep recession, with a contraction of 3 % estimate this year and 1 % next, according to the fund. Additional than one % point has been sliced from Brazil’s estimate increase rate this year, with Latin America’s major economy likely to expand only 0.3 % in 2015 and 1.5 % next year, the IMF believes.

Compared with these large downgrades, the 0.2 and 0.3 % point cuts to the eurozone estimate for this year and next are relatively minor. They are based on the European Central Bank introducing quantitative easing later this week.
The cut to the estimate will, however, increase the concern expressed by the IMF in October that there was a 40 % luck of the single currency area slipping into its third recession since 2008.

The US and Spain enjoyed the major uplift to their forecasts, with the US, the world’s most significant economy, expected to expand 3.6 % in 2015 and 3.3 % in 2016.
Forecasts for other large economies such as India and the UK, along with the eastern Europe region, were left largely unaltered.

To improve the outlook, the IMF continued to recommend loose monetary policy and increased infrastructure investment , which it believes helps both increase medium-term increase and the additional immediate recovery.
The fund’s gloomy assessment chimed with an International Labour Organisation prediction, as well published on Tuesday, that world unemployment will remain elevated until at least 2017 as the slight fall in joblessness in advanced economies is offset by an increase in developing nations — a reversal of the trend in recent years.

“The challenge of bringing unemployment and underemployment back to pre-crisis levels presently appears as daunting a task as ever, with considerable societal and economic risks associated with this situation,” the ILO said in its World Employment and Social Outlook.
The ILO estimate joblessness in the G20’s advanced economies would decline from 7.7 % to 7 %, propelled by improvements in the US, UK and some southern European nations. But joblessness in the G20’s emerging economies would increase from 5 % to 5.2 %, driven by increases in East Asia and Brazil, it said.

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