IMF cuts outlook for advanced economies: Update
But a slightly improved outlook for oil and other commodity prices translated into better economic prospects for some emerging economies. Economic growth in emerging and developing countries is likely to accelerate to 4.2pc next year, from 4.1pc last year, the IMF said today in its October World Economic Outlook (WEO). If the projection comes true, it would mark the first acceleration in growth in the emerging economies in six years.
The report projects global economic growth rates at 3.1pc this year and 3.4pc in 2017, unchanged from its July projections. IMF forecasts are widely used in the modeling behind key oil demand projections, including the IEA's.
The IMF predicted that the US economy would grow by 1.6pc this year, a reduction of 0.6 percentage point from the July projection. The projection for 2017 is 2.2pc, meaning US growth will fall short of its 2015 rate of 2.6pc. The projection reflects weak business investment in the first half of the year. But the report was prepared before the US Bureau of Economic Analysis on 30 September revised its second quarter economic growth rate to 1.8pc, from the initial estimate of 1.2pc.
The IMF cut back growth prospects for France and Italy, while raising them for Germany and the UK. Advanced economies will continue along a disappointingly low growth path in the medium term, IMF research director Maurice Obstfeld said.
The prospect is worrisome, because "there is the gathering political fallout from persistently low growth," he said. "The result in some richer countries has been a political movement that blames globalization for all woes and seeks somehow to wall off the economy from global trends rather than engage cooperatively with foreign nations." The outcome of the British referendum to leave the EU is an example of that trend, he said.
The IMF slightly upgraded its projection for UK's economic growth, to 1.8pc in 2016, as it noted that the most dire predictions of the outcome of the referendum did not materialize, in part because of coordinated action by central banks globally.
But Obstfeld said the IMF stood by its forecast of long-term negative effects of the UK's decision to leave the EU. The sharp depreciation of the pound since the referendum means a decline in real incomes for UK citizens, Obstfeld said. The pound yesterday fell to a fresh multi-decade low against the US dollar after UK prime minister Theresa May outlined a protracted process for the departure from the EU that leaves little time to negotiate new terms of trade with Europe.
The electoral campaign in the US also is a source of uncertainty for the global economy, Obstfeld said. Both Republican candidate Donald Trump and his Democratic opponent Hillary Clinton have spoken out against new free trade agreements and criticized the existing US trade deals. The US Congress seems unlikely to ratify the Trans-Pacific Partnership deal covering 12 countries in the Asia-Pacific region. And opposition is rising on both sides of the Atlantic to the proposed US-EU free trade deal, the Transatlantic Trade and Investment Partnership.
A revision of long-standing positions on free trade in the US has introduced an element of uncertainty for investors, Obstfeld said. But it is hard to imagine how radically the new US president will change the direction of trade policies, given the checks and balances in the US political system, he said.
At the same time, medium-term growth in emerging markets should accelerate as most of the large countries with currently shrinking economies stabilize, Obstfeld said. The IMF still projects recession this year in Brazil, Russia and Nigeria. But it improved projections for Russia and Nigeria since July, noting the improved oil price outlook. By contrast, the IMF cut Mexico's projected growth rate to 2.1pc in 2016 and 2.3pc in 2017.
The IMF outlook for the Middle East and North Africa region remains unchanged despite the better picture for global oil markets. That outlook reflects two offsetting factors, IMF deputy research director Gian Maria Milesi-Ferretti said. The rebound in oil prices has boosted budget revenues and growth prospects in the countries of the region, but structural reforms carried out in Saudi Arabia and other states are constraining domestic demand in the near term.
The report leaves unchanged the projection for China's growth rate, at 6.6pc this year and 6.2pc in 2017. The IMF continues to urge Beijing to cut off support to unviable state-owned enterprises and accept "the associated slower GDP growth" in the immediate term. India and other emerging Asian economies are showing somewhat better prospects for growth, the report said.
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| Oct 16 WEO % | ± Jul 16 WEO update* | |||||
| Region | 2015 | 2016 | 2017 | 2015 | 2016 | 2017 |
| World | 3.2 | 3.1 | 3.4 | 0.1 | 0.0 | 0.0 |
| US | 2.8 | 1.6 | 2.2 | 0.4 | -0.6 | -0.3 |
| Eurozone | 2.0 | 1.7 | 1.5 | 0.3 | 0.1 | 0.1 |
| UK | 2.2 | 1.8 | 1.1 | 0.0 | 0.1 | -0.2 |
| China | 6.9 | 6.6 | 6.2 | 0.0 | 0.0 | 0.0 |
| India | 7.6 | 7.6 | 7.6 | 0.0 | 0.2 | 0.2 |
| Japan | 0.5 | 0.5 | 0.6 | 0.0 | 0.2 | 0.5 |
| Russia | -3.7 | -0.8 | 1.1 | 0.0 | 0.4 | 0.1 |
| LatAm-Caribbs | 0.0 | -0.6 | 1.6 | 0.0 | -0.2 | 0.0 |
| Mena-Af-Pak† | 2.3 | 3.4 | 3.4 | 0.0 | 0.0 | 0.1 |
| Crude \\$/bl‡ | 50.8 | 43.0 | 50.6 | 0.0 | 0.1 | 0.6 |
| *percentage points †Middle East, North Africa, Afghanistan and Pakistan ‡average of Brent, WTI, Dubai crude, change in \\$/bl | ||||||
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