INTERNATIONAL. The International Monetary Fund (IMF) has described the global economy as experiencing “the broadest synchronised upswing… in the last decade”.
In an update to the IMF’s World Economic Outlook report, Economic Counsellor Maurice Obstfeld said, “The recovery in global growth that we projected in April is on a firmer footing; there is now no question mark over the world economy’s gain in momentum.”
“Recent data pointed to the broadest synchronised upswing the world economy has experienced in the last decade”
The World Economic Outlook Update projects +3.5% growth in global output for this year and +3.6% for 2018.
Obstfeld highlighted the improved performance of the Eurozone, for which the IMF has raised its forecast. It also posted improved projections for Japan, for China, for emerging and developing Asia, and emerging and developing Europe and Mexico.
There were some negatives though. From a global growth perspective, the most important downgrade is the United States. The IMF commented: “Over the next two years, U.S. growth should remain above its longer-run potential growth rate. But we have reduced our forecasts for both 2017 and 2018 to 2.1 percent because near-term U.S. fiscal policy looks less likely to be expansionary than we believed in April. This pace is still well above the lacklustre 2016 U.S. outcome of 1.6 percent growth.
“Our projection for the United Kingdom this year is also lowered, based on the economy’s tepid performance so far. The ultimate impact of Brexit on the United Kingdom remains unclear. Overall, though, recent data pointed to the broadest synchronised upswing the world economy has experienced in the last decade. World trade growth has also picked up, with volumes projected to grow faster than global output in the next two years.”
It continued: “There do remain areas of weakness, however, among middle- and low-income countries, notably commodity exporters who continue to adjust to reduced terms of trade. Latin America still struggles with sub-par growth, and we have lowered projections for the region over the next two years. Growth this year in sub-Saharan Africa is projected to be higher than last year, but remains barely above the population growth rate, implying stagnating per capita incomes.”
Risks
On the downside, many emerging and developing economies have been receiving capital inflows at favourable borrowing rates, Obstfeld noted, possibly leading to risks of balance of payments reversals later. Strains, he said, could emerge if advanced economy central banks show an increasing preference for monetary tightening, as some have in recent months.
“Core inflation pressures remain low in advanced economies and measures of longer-term inflation expectations show no indications of upward drift beyond targets, so central banks should proceed cautiously based on incoming economic data, reducing the risk of a premature tightening in financial conditions.”
Chinese moves welcomed
Supportive policy has promoted China’s recent high growth rates, Obstfeld said, prompting an IMF upgrading of its 2017 and 2018 forecasts for China, by 0.1 and 0.2 percentage point, respectively, to 6.7 and 6.4 percent. “But higher growth is coming at the cost of continuing rapid credit expansion and the resulting financial stability risks,” he warned. “China’s recent moves to address nonperforming loans and to coordinate financial oversight therefore are welcome.” That is a reference to Chinese central government concern about Chinese banks’ potential over-exposure to several ultra-acquisitive, debt-laden Chinese companies (including Dufry stakeholder HNA Group).
