The IMF cut its global growth forecasts for the third time in less than a year yesterday, as new figures from Beijing showed the Chinese economy grew at its slowest rate in a quarter of a century in 2015. To back its forecasts, the IMF cited a sharp slowdown in China trade and weak commodity prices that are hammering Brazil and other emerging markets.
The fund forecast the world economy would grow at 3.4% in 2016 and 3.6% in 2017, both years down 0.2 percentage point from the previous estimates made last October.
It said policy-makers should consider ways to bolster short-term demand.
The updated forecasts came as global financial markets have been roiled by worries over China’s slowdown — confirmed by official Chinese data on Tuesday — and plummeting oil prices.
The IMF maintained its previous China growth forecasts of 6.3% in 2016 and 6% in 2017, which represent sharp slowdowns from 2015.
China reported growth for 2015 hit 6.9% after a year in which the world’s second biggest economy endured huge capital outflows, a slide in the currency and a summer stock market crash.
Concerns about Beijing’s grip on economic policy have shot to the top of global investors’ risk list for 2016 after falls in its stock markets and the yuan stoked worries that the economy may be rapidly deteriorating.
The Fund said a steeper slowing of demand in China remained a risk to global growth and weaker-than- expected Chinese imports and exports were weighing heavily on other emerging markets and commodity exporters.
“We don’t see a big change in the fundamentals in China compared to what we saw six months ago, but the markets are certainly very spooked by small events there that they find hard to interpret,” IMF economic counselor Maurice Obstfeld said.
He said global financial markets seemed to be overreacting to falling oil prices and the risk of a sharp downturn in China.
“It’s not a stretch to suggest that [markets] may be reacting very strongly to rather small bits of evidence in an environment of volatility and risk aversion,” he said.
“The oil price puts stresses on oil exporters... but there is a silver lining for consumers worldwide, so it’s not an unmitigated negative.”
The fund said the outlook for an acceleration of US output was dimming as dollar strength weighs on manufacturing and lower oil prices curtail energy investment.
It now projects US economic growth at 2.6% for both 2016 and 2017, down 0.2 percentage point in both years from the October forecast.
In Europe, lower oil prices will help support private consumption, so the IMF said it added 0.1 percentage point to its 2016 eurozone growth forecast, bringing it to 1.7%, where it will remain for 2017.
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