WASHINGTON — The International Monetary Fund, citing “subdued” global economic growth last year, has downgraded both its global economic and trade forecast for 2016 and 2017.
The recent economic turmoil in China that has shaken global financial markets in recent days is one of the key risks threatening global growth in the next two years, the IMF said.
According to its “World Economic Outlook” update released on Tuesday, the IMF has cut its forecast for global economic growth by 0.2 percent from its previous outlook in October for both this year and 2017. Global economic growth, currently estimated at 3.1 percent in 2015, is projected at 3.4 percent in 2016 compared with a year earlier, and 3.6 percent in 2017, the IMF said.
“Prospects for global trade growth were also marked down by more than half a percentage point for [both years] reflecting recent developments in China as well as distressed economies,” the IMF said.
The volume of world trade in goods and services is expected to grow 3.4 percent this year, down 0.7 percent from its forecast in October, and increase 4.1 percent in 2017, down 0.5 percent from the previous IMF forecast.
Some of largest contributors behind the downward revision to global economic growth are: China’s economic rebalancing, a recession and political instability in Brazil, lower oil prices in the Middle East and a slowdown in economic activity in the U.S., the report said.
The IMF also cut its U.S. growth forecast by 0.2 percent to 2.6 in the next two years, according to the IMF, citing the recent moves by the Federal Reserve to raise the short-term interest rate.
“Risks to the global outlook remain tilted to the downside and relate to ongoing adjustments in the global economy: a generalized slowdown in emerging market economies, China’s rebalancing, lower commodity prices, and the gradual exit from extraordinarily accommodative monetary conditions in the United States. If these key challenges are not successfully managed, global growth could be derailed,” the IMF report said.
A projected gradual improvement in growth rates in countries in “economic distress,” including Brazil, Russia and some Middle Eastern countries, supports the IMF’s overall projected economic growth in the next two years, despite China’s slowdown.
The forecast for emerging market and developing economies was cut to 4.3 percent in 2016, from a forecast of 4.5 percent in October. They are forecast to grow 4.7 percent in 2017.
China’s economic slowdown, presents one of the greatest risks.
The IMF projects economic growth in China at 6.3 percent this year and 6 percent in 2017, reflecting what it said is weaker investment growth in line with China’s rebalancing.
The Chinese government said Tuesday its economy grew 6.9 percent in 2015, marking the weakest expansion since 1990.
“Overall growth in China is evolving broadly as envisaged, but with a faster-than-expected slowdown in imports and exports, in part reflecting weaker investment and manufacturing activity,” the IMF said. “These developments, together with market concerns about the future performance of the Chinese economy, are having spillovers to other economies through trade channels and weaker commodity prices, as well as through diminishing confidence and increasing volatility in financial markets.”
Trade and manufacturing activity is also projected to remain weak globally, the IMF said, reflecting the slowdown in China as well as “subdued” global demand and investment.
“In addition, the dramatic decline in imports in a number of emerging market and developing economies in economic distress is also weighing heavily on global trade,” the report said.
Other risks include further appreciation of the U.S. dollar and tighter global financing conditions as it exits from “extraordinary accommodative monetary policy,” an environment of higher risk aversion and market volatility, which could lead to sharp depreciation in “vulnerable” emerging markets, and an escalation of geopolitical tensions in a number of regions.
While economic growth in countries such as India and the rest of emerging Asia are expected to continue at a robust pace, those countries could face “strong headwinds” from China’s economic rebalancing and global manufacturing downturn, the report said.