Steep cut: IMF slashes global growth forecast for 2015-2016

The International Monetary Fund on Tuesday sharply cut its 2015-2016 world growth forecast of only six months ago, saying lower oil prices did not offset pervasive weaknesses around the globe. The IMF said poorer prospects in China, Russia, the euro area and Japan will hold world growth to just 3.5 per cent this year and 3.7 per cent in 2016. That was 0.3 percentage points lower than in its previous World Economic Outlook in October, and underscored the steady deterioration of the economic picture for many countries, due to sluggish investment, slowing trade and falling commodity prices. While the United States will remain the one bright spot among major economies, Europe will continue to struggle with disinflation, and China’s growth, hit by slower export growth and a real estate slump, will drag to its slowest pace in a quarter-century.

New factors supporting growth - lower oil prices, but also depreciation of euro and yen - are more than offset by persistent negative forces, including the lingering legacies of the crisis and lower potential growth in many countries.

Olivier Blanchard, the IMF’s chief economist

China, the second largest economy, will expand at 6.8 per cent this year - 0.3 percent slower than previously expected - and 6.3 per cent in 2016, the IMF said. The last time Chinese growth fell below seven percent was in the crunch of 1990, when it slowed to 3.8 per cent. The impact of slower Chinese growth will spill over especially to other Asian countries, the IMF said, resulting in its downgrade of their growth prospects as well. The world’s crisis lender also warned that continued volatility in markets, partially a product of the U.S. beginning to tighten monetary policy, pushing the dollar higher, will challenge governments and central banks around the world for some time to come.

World IMF