The IMF on Tuesday said the risk of political isolationism, notably Britain’s possible exit from the EU, and the risk of growing economic inequality as it cut its global economic growth forecast for the fourth time in a year.
In the run-up to the annual spring meetings of the IMF and the World Bank in Washington this week, the IMF said the global economy was vulnerable to shocks such as sharp currency devaluations and worsening geopolitical conflicts.
In its latest World Economic Outlook, the IMF forecast global economic growth of 3.2 percent this year, compared to a forecast of 3.4 percent in January.
For next year, the IMF said the global economy would grow 3.5 percent, down 0.1 percentage point from its January estimate.
Its latest report cited a worsening spillover from China’s economic slowdown as well as the impact of low oil prices on emerging markets such as Brazil. It also highlighted persistent economic weakness in Japan, Europe and the US.
The gloomier picture sets the stage for the IMF and the World Bank to call this week for more coordinated global action to support growth.
“In brief, lower growth means less room for error,” IMF chief economist Maurice Obstfeld told a news conference, adding that “scarring effects” from years of tepid growth could in turn weaken demand, thin the workforce, and reduce potential output further, creating a scenario of “secular stagnation.”
In its report, the IMF urged policymakers to boost growth with actions such as deregulating certain industries and raising labor market participation. It recommended nations with fiscal breathing room boost investments in infrastructure and cut labor taxes, and it encouraged central banks to keep monetary policy accommodative.
The IMF cut Japan’s growth forecast for this year in half to 0.5 percent. It said Brazil’s economy would now shrink by 3.8 percent this year versus the previous forecast of a 3.5 percent contraction, as Latin America’s largest economy struggles through its deepest recession in decades.
The US, one of the relative bright spots in the global economy, also saw this year’s growth forecast cut to 2.4 percent from 2.6 percent.
The IMF nudged China’s growth forecast slightly higher to 6.5 percent this year, and 6.2 percent next year, partly due to previously announced policy stimulus moves. However, the fund added that it was reducing its longer-term growth forecasts for China and said the Asian nation’s “momentous” shift away from investment-led growth was continuing to chill global trade.
For Taiwan, the fund estimated a growth forecast of 1.5 percent for this year, up from 0.7 percent last year, and 2.2 percent for next year.
Additional reporting by staff writer
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