Wednesday, 26 April, 2017

IMF foresees global economy accelerating to 3.5 pct

Maurice Obstfeld Global growth is gathering steam IMF says, raises forecast
Debra Rodriguez | 18 April, 2017, 17:13

The IMF, whose spring meetings with the World Bank get underway in Washington this week, forecast that the global economy would grow 3.5 percent in 2017, up from its previous forecast of 3.4 percent in January.

The emergence of protectionist forces could undermine a modest brightening of the global growth outlook and is putting severe strain on the post-World War II economic order, the International Monetary Fund said.

But the International Monetary Fund gave its backing to the Bank of England's decision to persist with historic-low interest rates, describing it as "appropriate because growth is expected to slow".

Europe and Japan's outlooks also improved due to a recovery in global manufacturing and trade.

"The economic upswing that we have expected for some time seems to be materializing: indeed, the World Economic Outlook (WEO) raises its projection for 2017 global growth to 3.5 percent, up from our recently forecast 3.4 percent", the report stated.

The Fund has raised its growth forecasts slightly from estimates released last October as macro economic conditions eased for commodity exporters and investment levels grew in advanced economies.

The IMF left its USA forecast unchanged for this year and next, at 2.3 percent and 2.5 percent respectively, after raising its projections in January on Trump's plan to cut taxes and boost infrastructure spending.

The report warns of the "significant downside risks" to the outlook, which have gotten worse since January - among them, "the turn towards protectionism, leading to trade warfare", Obstfeld said in the foreword of the report.

China is set to grow 6.6% this year and 6.2% in 2018, compared to 6.7% in 2016.

While the forecast growth for many economies has been increased slightly, the 0.5% rise in predicted United Kingdom growth this year is striking - it is, by far, the biggest change made in any of the IMF's forecasts.

It reflects the stronger-than-expected momentum in 2016 and the anticipation of continued policy support in the form of strong credit growth and reliance on public investment to achieve growth targets, the report said.

World growth is expected to rise from 3.1 per cent in 2016 to 3.5 per cent in 2017 and 3.6 per cent in 2018, slightly above the October, 2016, WEO forecast. Thanks in part to relief over China's prospects, global commodity prices have stabilized after plummeting from mid-2014 to early 2016.

The IMF said China has made some progress in reducing its industrial production overcapacity, but noted that the economy continues to rely on government stimulus and rapid credit expansion to maintain growth.

The IMF said a faster-than-expected pace of interest rate hikes in the United States could tighten financial conditions elsewhere, with potential further U.S. dollar appreciation straining emerging market economies with exchange rate pegs to the dollar or with material balance sheet mismatches.

Economic performance across emerging market and developing economies has remained mixed, it said.

But Obstfeld said the benefits of growth and the burden of economic adjustments too often have been unequally shared, so it will be up to the governments to "address these disparities head-on to ensure the stability of an open, collaborative trading system that benefits all".

The IMF report stressed that risks to the outlook "remain tilted to the downside", meaning that while growth could turn out to be faster than expected - particularly if there is a large U.S. government spending program - there are more negative possibilities on the horizon.

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