IMF's Latest World Economic Outlook Foresees Lower Global Growth

The IMF's latest World Economic Outlook foresees lower global growth compared to last year, with improving prospects in advanced economies and a slowing in emerging markets, primarily reflecting weakness in some large emerging economies and oil-exporting countries.

Forecasts for the world economy are for 3.1 percent growth this year, weaker than in 2014, and 3.6 percent next year.
"Well, our forecast is that for this year there'll be a moderate pickup in advanced economy growth compared to last year, but a slowdown in emerging economy growth. For both groups we're looking at a pickup in 2016. But, importantly, since our July forecast, we have downgraded growth prospects pretty much across the board. Moreover, downside risks seem to have increased. The world economy now seems to be poised between two rivers: one is China's rebalancing, one is monetary normalization in the U.S. And when two rivers come together you can have some whitewater," said Maurice Obstfeld, the IMF Economic Counsellor and Director of the Research Department.

These forecasts reflect a world economy that is at the intersection of powerful forces, Obstfeld noted. First, China's economic transformation—away from export- and investment-led growth and manufacturing, in favor of a greater focus on consumption and services combined with the fall in commodity prices; and second, the impending interest rate liftoff in the United States, which can have global repercussions and add to current uncertainties.

"China's undergoing a process of rebalancing and transformation, which ultimately will be to the benefit of China and to the rest of the world. This involves a shift from an export-led, investment-led economy to more consumption, more services. In the process, though, there's slower growth, which was completely foreseen, but there is also spillovers for some of China's trade partners because its imports have fallen, its demand for commodities has fallen, and that has helped push down commodity prices worldwide," Obstfeld said.

In this global environment, with the risk of low growth for a long time, the WEO underlines the need for policymakers to raise actual and potential growth.

Growth prospects in emerging markets and developing economies vary across countries and regions. But the outlook in 2015 is generally weakening, with growth for these economies as a group projected to decline from 4.6 percent in 2014 to 4.0 percent in 2015.

The fifth straight year of slowing growth reflects a combination of factors: weaker growth in oil exporters, a slowdown in China with less reliance on commodity-intensive investment, adjustment in the aftermath of credit and investment booms, and a weaker outlook for exporters of other commodities, including in Latin America, following declines in their export prices. In addition, geopolitical tensions and domestic strife in a number of countries remain high, with immense economic and social costs.

External conditions are becoming more difficult for most emerging economies. The prospect of rising U.S. interest rates and a stronger dollar has already contributed to higher financing costs for some borrowers, including emerging and developing economies. And while the growth slowdown in China is so far in line with forecasts, its cross-border repercussions appear larger than previously envisaged, including through weaker commodity prices and reduced imports.

The projected rebound in growth in emerging market and developing economies in 2016 therefore reflects not a general recovery, but mostly a less deep recession or a partial normalization of conditions in countries in economic distress in 2015 (including Brazil, Russia, and some countries in Latin America and in the Middle East), spillovers from the stronger pickup in activity in advanced economies, and the easing of sanctions on the Islamic Republic of Iran.

"The emerging markets made incredible strides in the 2000s. They were in a good position to weather the global financial crisis as a result. We've been through a lot since then, though, and what we see in some countries is reform fatigue, in others we see overhangs of credit, we see some overhangs of investment in commodity-producing sectors. The answer differs from country to country. Generally speaking, structural reforms, improvements in the business climate, mindful fiscal frameworks can be very helpful for emerging economies. Also, exchange rate flexibility remains very important for them," Obstfeld said.

Growth in advanced economies is projected to increase modestly this year and next. This year's pickup reflects primarily a strengthening of the modest recovery in the euro area and a return to positive growth in Japan, supported by declining oil prices, accommodative monetary policy, and improved financial conditions, and in some cases, currency depreciation.

While growth is expected to increase in 2016, especially in North America, medium-term prospects remain subdued, reflecting a combination of lower investment, unfavorable demographics, and weak productivity growth.

"Many of these economies still have legacies of the crisis that have be worked off in their financial sectors. That's an important unfinished piece of business. Where inflation pressures are absent or, indeed, there's a risk of deflation, monetary policy accommodation needs to be maintained, and the euro zone and Japan are prime candidates in this regard. Countries with fiscal space should consider expanding. In many countries there's a need for infrastructure, which can benefit their economies and the world economy where aggregate demand is sorely insufficient," Obstfeld said.

Given the distribution of risks to the near-term outlook, global growth is more likely to fall short of expectations than to surprise on the upside.

The report underscores that raising actual and potential output must remain the policy priority. This will require a combination of demand support and structural reforms.
STORY: IMF / WORLD ECONOMIC OUTLOOK
SOURCE: IMF / RECENT
RESTRICTIONS: NONE
LANGUAGE: ENGLISH / NATS
DATELINE: 05 OCTOBER 2015, WASHINGTON, DC / RECENT

SHOTLIST:

RECENT – BALTIMORE, MARYLAND, UNITED STATES OF AMERICA

1.Wide shot port
2.Various containers


05 OCTOBER 2015, WASHINGTON, DC

3.SOUNDBITE: (ENGLISH) Maury Obstfeld, Chief Economist, IMF:
"Well, our forecast is that for this year there'll be a moderate pickup in advanced economy growth compared to last year, but a slowdown in emerging economy growth. For both groups we're looking at a pickup in 2016. But, importantly, since our July forecast, we have downgraded growth prospects pretty much across the board. Moreover, downside risks seem to have increased. The world economy now seems to be poised between two rivers: one is China's rebalancing, one is monetary normalization in the U.S. And when two rivers come together you can have some whitewater."

RECENT - BEIJING, CHINA

4.    People shopping

05 OCTOBER 2015, WASHINGTON, DC

5.SOUNDBITE: (ENGLISH) Maury Obstfeld, Chief Economist, IMF:
"Well, China's undergoing a process of rebalancing and transformation, which ultimately will be to the benefit of China and to the rest of the world. This involves a shift from an export-led, investment-led economy to more consumption, more services. In the process, though, there's slower growth, which was completely foreseen, but there is also spillovers for some of China's trade partners because its imports have fallen, its demand for commodities has fallen, and that has helped push down commodity prices worldwide."

RECENT - LIMA, PERU

6.Wide shot Lima
7.Cars going down highway

05 OCTOBER 2015, WASHINGTON, DC

8.SOUNDBITE: (ENGLISH) Maury Obstfeld, Chief Economist, IMF:
"The emerging markets made incredible strides in the 2000s. They were in a good position to weather the global financial crisis as a result. We've been through a lot since then, though, and what we see in some countries is reform fatigue, in others we see overhangs of credit, we see some overhangs of investment in commodity-producing sectors. The answer differs from country to country. Generally speaking, structural reforms, improvements in the business climate, mindful fiscal frameworks can be very helpful for emerging economies. Also, exchange rate flexibility remains very important for them."

RECENT - TOKYO, JAPAN

9.People looking in at stock market quotes

05 OCTOBER 2015, WASHINGTON, DC

10.SOUNDBITE: (ENGLISH) Maury Obstfeld, Chief Economist, IMF:
"Well, as you say, many of these economies still have legacies of the crisis that have be worked off in their financial sectors. That's an important unfinished piece of business. Where inflation pressures are absent or, indeed, there's a risk of deflation, monetary policy accommodation needs to be maintained, and the euro zone and Japan are prime candidates in this regard. Countries with fiscal space should consider expanding. In many countries there's a need for infrastructure, which can benefit their economies and the world economy where aggregate demand is sorely insufficient."

BERLIN, GERMANY

11.Various pedestrians on Street
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