The International Monetary Fund lowered its world economic growth outlook for the next two year, stating that a weaker pick up in emerging economies, deepening recession in Brazil, plunging oil prices and a loss of steam in the U.S. economy created uncertainties.
It said in the latest update to its quarterly World Economic Outlook that the global economy will grow by 3.4 percent this year, lower than its earlier projection of 3.6 percent. The IMF also lowered its 2017 forecast to 3.6 percent, down from the eaerlier 3.8 percent.
It said prospects for global trade growth have also been marked down by more than ½ percentage point for 2016 and 2017, reflecting developments in China as well as distressed economies.
In 2015, global economic activity remained subdued and growth in emerging market and developing economies—while still accounting for over 70 percent of global growth—declined for the fifth consecutive year, while a modest recovery continued in advanced economies, the Fund said.
The gradual slowdown and rebalancing of economic activity in China away from investment and manufacturing toward consumption and services; lower prices for energy and other commodities; and a gradual tightening in monetary policy in the United States were three key transitions that influenced the global outlook, the report said.
It warned that if these transitons were not successfully managed, the global growth could be derailed and added that the picture for emerging market and developing economies is diverse but in many cases challenging.
The slowdown and rebalancing of the Chinese economy, lower commodity prices, and strains in some large emerging market economies will continue to weigh on growth prospects in 2016–17, it said, adding that the projected pickup in growth in the next two years—despite the ongoing slowdown in China—primarily reflects forecasts of a gradual improvement of growth rates in countries currently in economic distress, notably Brazil, Russia, and some countries in the Middle East.
Even this projected partial recovery could be frustrated by new economic or political shocks, it warned.