IMF raises growth outlook

The IMF warned policymakers not to get too comfortable even as it raised its global growth forecast amid brightening prospects in the world’s biggest economies.

The Washington-based lender lifted its growth outlook for the US, the eurozone, Japan, and China from its last forecast in July. The recovery spans roughly 75% of world output, according to the IMF.

The fund projects the global economy will grow 3.6% this year and 3.7% next, in both cases an increase of 0.1 percentage point from its previous estimate. The recovery is accelerating from a low gear — global growth of 3.2% last year was the slowest since the Great Recession of 2007 to 2009.

The fund warned that medium-term risks are tilted to the downside, highlighting dangers from tightening financial conditions, low inflation in advanced economies, financial turmoil in emerging markets and protectionist policies.

“Neither policymakers nor markets should be lulled into complacency,” IMF chief economist Maurice Obstfeld said in the World Economic Outlook report.

“A closer look suggests that the global recovery may not be sustainable — not all countries are participating, inflation often remains below target with weak wage growth, and the medium-term outlook still disappoints in many parts of the world,” he said.

Finance ministers and central bankers from the IMF’s 189 member nations will be heartened by the brighter global outlook as they meet this week in Washington for the fund’s annual meetings.

In a speech last week, managing director Christine Lagarde said the IMF is seeing “some sun breakthrough” for the world economy. Investors have been basking for some time, with the MSCI world stock index up 15% this year.

But Ms Lagarde warned that a strengthening recovery may be masking more troubling trends, such as an increase in political polarisation brought about by inequality. The spectre of trade wars also remains.

The same week as the IMF meetings, negotiators from the US, Mexico and Canada will meet less than five miles away for the fourth round of increasingly tense talks to overhaul the North American Free Trade Agreement. The fund now expects growth in the eurozone of 2.1% this year and 1.9% next, both up 0.2 points from three months ago.

Bloomberg