The International Monetary Fund (IMF) on Tuesday stepped up its warning of weakness in the global economy ahead of a gathering this week of the world’s top economic policymakers in Washington.
The IMF said it anticipates the global economy would expand by 3.2 percent this year, down 0.2 percentage points from its forecast just three months ago. And the fund candidly admitted that even that projection could easily prove too optimistic amid upheaval in emerging markets, slowdown in China and fraying political and economic ties in Europe.
“The central scenario … now looks less likely compared with possible less favorable outcomes,” IMF chief economist Maurice Obstfeld said.
The fund lowered its expectation for growth in almost every country and region in the world. It downgraded its assessment of the U.S. expansion by 0.2 percentage points, from 2.1 to 1.9 percent this year. Estimates for Japan were cut in half, to 0.5 percent, while Brazil’s economy is now expected to shrink 3.8 percent. The IMF also predicted the slide in oil prices would continue, reducing its forecast of decline by another 14 percentage points to nearly 32 percent this year.
Notably, however, China’s economy is projected to grow slightly faster than previously anticipated this year, up to 6.5 percent from 6.3 percent. Obstfeld said that reflects the IMF’s confidence that new stimulus efforts will help the nation reach its targets for growth. But he cautioned that longer-term forecasts are dimmer, as China continues to load up on debt and provide support to declining industries.
“We worry about the quality of growth more than the quantity of growth,” he said.
The gloomy outlook comes during a period of relative stability in global financial markets following a tumultuous start to the year that echoed the wild swings suffered in summer and early fall 2015. But the IMF warned that the calm could be deceiving.
In June, Britain will hold an historic vote on whether to remain part of the European Union, a decision that will test the limits of the continent’s political and economic ties. Obstfeld characterized the potential for a so-called “Brexit” as a “real possibility,” one that threatens to unleash a new wave of fear and uncertainty among investors. In addition, he dubbed the flood of Syrian refugees into Europe a “humanitarian disaster” that is fraying already-tense relationships.
