The IMF made the steepest cut to its global-growth outlook in three years, with diminished expectations almost everywhere except the US more than offsetting the boost to expansion from lower oil prices.
The world economy would grow 3.5 percent this year, down from the 3.8 percent pace projected in October, the IMF said in its quarterly global outlook released late on Monday.
The Washington-based lender also cut its estimate for growth next year to 3.7 percent, compared with 4 percent in October.
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The weakness, along with prolonged below-target inflation, is challenging policymakers across Europe and Asia to come up with fresh ways to stimulate demand more than six years after the global financial crisis.
Central bankers and government officials, including Bank of England Governor Mark Carney and Bank of Japan Governor Haruhiko Kuroda might talk about options when they convene this week at the World Economic Forum’s annual meeting in Davos, Switzerland.
“The world economy is facing strong and complex cross currents,” IMF chief economist Olivier Blanchard said in the text of remarks at a press briefing yesterday in Beijing. “On the one hand, major economies are benefiting from the decline in the price of oil. On the other, in many parts of the world, lower long-run prospects adversely affect demand, resulting in a strong undertow.”
The IMF cut its outlook for consumer-price gains in advanced economies almost in half to 1 percent for this year. Developing economies would see inflation this year of 5.7 percent, a 0.1 percentage point markup from October’s projections, the fund said.
The growth forecast reduction was the biggest since January 2012, when the fund lowered its estimate for expansion that year to 3.3 percent from 4 percent amid forecasts of a recession in Europe.
The IMF marked down estimates for this year for places including the eurozone, Japan, China and Latin America. The deepest reductions were in places suffering from crises, such as Russia, or for oil exporters, including Saudi Arabia.
IMF Managing Director Christine Lagarde outlined the sobering outlook in her first speech of the year last week, saying that oil prices and US growth “are not a cure for deep-seated weaknesses elsewhere.”
The US is the exception. The IMF upgraded its forecast for the world’s largest economy to 3.6 percent growth for this year, up from 3.1 percent in October.
Cheap oil, more moderate fiscal tightening and still-loose monetary policy would offset the effects of a gradual increase in interest rates and the curb on exports from a stronger dollar, the fund said.
In Europe, weaker investment would overshadow the benefits of low oil prices, a cheaper currency and the European Central Bank’s anticipated move to expand monetary stimulus by buying sovereign bonds, the IMF said.
The fund lowered its forecast for the 19-nation eurozone to 1.2 percent this year, down from 1.3 percent in October.
The ECB should go “all in” in its bond-buying program, Blanchard said in an interview with Bloomberg TV.
“We want to make sure that when there’s an announcement, that it’s as large as what the market’s expecting,” he said.
The IMF also trimmed its estimate for China’s growth to 6.8 percent, down 0.3 percentage point from October.
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