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Global growth to stay weak says IMF

International Business
Wed, 05 Oct 2016

WASHINGTON: The International Monetary Fund maintained its forecast for weak global growth yesterday and warned that further stagnation will fuel more populist sentiment against trade and immigration that would stifle activity, productivity and innovation.

In the latest update of its World Economic Outlook, the IMF said that a drop in US growth for 2016 due to a weak first-half performance would be offset by strengthening in Japan, Germany, Russia, India and some other emerging markets.

The Fund kept its overall global growth forecasts unchanged at 3.1 per cent for 2016 and 3.4pc for 2017 after cutting its outlook for five straight quarters.

“Taken as a whole, the world economy has moved sideways,” IMF chief economist Maurice Obstfeld said. “Without determined policy action to support economic activity over the short and longer terms, sub-par growth at recent levels risks perpetuating itself.”

The new forecasts were released as economic policymakers gather in Washington for this week’s IMF and World Bank annual meetings amid growing public sentiment against trade and globalisation – from Britain’s vote to leave the European Union to US presidential candidate Donald Trump’s threats to levy punitive tariffs on goods from China and Mexico.

The report found that a deceleration in trade liberalisation and an uptick in protectionist policies has contributed to the slowdown in global trade since 2008, which, in turn has weighed on global growth.

The IMF said advanced economies as a whole will see a slight weakening of growth in 2016 to 1.6pc, while emerging market economies will see a slight gain to 4.2pc growth.

The US accounts for much of the slowing in advanced economies, with a reduction to 1.6pc growth from 2.2pc forecast in July, as weak business investment and a drawdown of goods inventories caused a disappointing first-half performance.

Obstfeld praised the US central bank’s decision to hold interest rates steady in September, and urged it to continue its gradual and data-driven approach to rate increases.

The IMF’s growth forecast for Japan improved slightly due to government spending, a delay in a consumption tax increase and expansionary monetary policy, but only to a weak 0.5pc in 2016 and 0.6pc in 2017.

Resilient consumer spending in Britain after the “Brexit” vote prompted the IMF to lift its 2016 UK forecast by 0.1 percentage point to 1.8pc, but it lowered its 2017 forecast to 1.1pc on anticipation that separation talks will take a bigger toll on investment.

Growth forecasts for China remained unchanged at 6.6pc for 2016 and 6.2pc for 2017 as strong policy support and credit growth were fuelling domestic consumption.