The International Monetary Fund warned of substantial risks in the major emerging market economies on Tuesday as it lowered its outlook for global economic growth this year.
Slower Chinese growth, a stronger US dollar, collapsed oil prices and political turmoil could all wreak further havoc in struggling economies like Russia and Brazil and across the Middle East, putting the brakes on the global recovery, the Fund said.
It also warned of danger if China does not manage well its slowdown and reforms, already spinning shockwaves through global financial markets.
And it said the refugee crisis poses formidable challenges to Europe as it tries to restart growth and urged more efforts to assimilate the new arrivals. The IMF said it expects the world economy to grow by 3.4 per cent this year, an improvement from 3.1 per cent in 2015 but still 0.2 percentage points below what it predicted in October.
While the advanced countries will anchor world economic expansion in 2016, rather than picking up pace, the United States will grow only 2.6 per cent, 0.2 per cent less than previously expected due to the strong dollar’s hit on US exporters and the slump in investment in the energy industry.
European got a slight upgrade, to 1.7 per cent this year, on the back of Spain’s stronger-than-expected rebound; and Japanese growth should pick up as well.
The Fund stuck to its forecast of 6.3 per cent growth for the Chinese economy, slowing from 6.9 per cent last year.
The IMF expressed guarded confidence in Beijing’s ability to manage its metamorphosis into a domestic consumption-driven economy and to modernize its financial sector.
Even so, it expects China’s deceleration will continue into 2017.
Latin America as a whole meanwhile will be dragged into recession by the deep troubles in regional giant Brazil, whose economy the IMF expects to contract by a steep 3.5 per cent this year, after 3.8 per cent in 2015. Overall, the picture for this year from the IMF, the world’s key crisis lender, is of slowing global trade and investment, with the sharp declines in commodity prices led by oil continuing to hurt exporters while not yet providing expected stimulus to importers and consumers.
Indeed, rather than a net positive for growth, the steepness of the plunge in oil prices has become a drag as major exporters retrench in the face of large fiscal deficits and the entire oil industry slashes investment.
“This coming year is going to be a year of great challenges and policymakers should be thinking about short-term resilience and the ways they can bolster it,” IMF Chief Economist Maurice Obstfeld said.