World Economy

IMF slashes world growth forecast again

IMF: Global growth modest 3.2% in 2016

The International Monetary Fund (IMF) has downgraded its world economic growth forecast yet again and warned of a backlash against cross-border economic integration in richer countries.

In its latest World Economic Outlook, the organization said Tuesday that it now saw the global economy growing by only 3.2 percent this year — 0.2 percentage points down on its January forecast, 0.4 percentage points lower than its estimate from October 2015 and 0.6 percent points down on its forecast from July.

It also cut its global growth estimate for 2017 to 3.5 percent, down from the 3.6 percent forecast in January.

Managing Director of the International Monetary Fund (IMF) Christine Lagarde.
Getty Images

"Global growth continues, but at an increasingly disappointing pace that leaves the world economy more exposed to negative risks. Growth has been too slow for too long," IMF Chief Economist Maurice Obstfeld told a media conference on Tuesday, according to prepared remarks.

The IMF downgraded the outlook for all major advanced economies, including the U.S., Canada, the euro area, the U.K. and Japan.

The U.S. is now seen expanding by 2.4 percent this year, rather than the 2.6 percent forecast in January. The IMF said U.S. domestic demand would be supported by strengthening balance sheets, the decline in fiscal drag and an improving housing market. This was expected to offset the downward push from a strong dollar and weaker manufacturing on net exports.

'Humanitarian crisis'

Obstfeld said both the U.S. and Europe faced a backlash at home against international economic integration — as seen in the rise of euroskeptic parties in the European Union (EU) and the isolationist policies of some U.S. presidential candidates . This trend threatened to halt or reverse 70 years of increasingly open trade, he warned.

The EU's open borders between member countries were also under threat, Obstfeld added, due to both economic pressures and the influx of refugees from the Middle East.

"Continuing violent instability in a number of countries, notably Syria, continues to crater their economies, driving millions of refugees to surrounding countries as well as to Europe. This is a humanitarian disaster," the economist said at the conference.

"It has challenged the European Union's capacity to preserve open internal borders and as the incidence of terrorism has increased, the strains have only grown. Coupled with other, economic, pressures, the result in Europe has been a rising tide of inward-looking nationalism."

He said one manifestation of this was the possibility the U.K. might vote to leave the EU in the referendum the country is holding in June 23. This would damage a wide range of trade and investment relations, Obstfeld said.

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The U.K. Chancellor of the Exchequer, who is in favor of the U.K. remaining part of the EU responded to the IMF report on Tuesday.

"Well today we have a stark warning from the IMF. For the first time they're saying that the threat of Britain leaving EU is having an impact on our economy and they cut our growth forecast as a result," George Osborne said in an emailed statement.

"They say were we actually to leave the EU there would be a short-term impact on stability and a long-term cost to the economy."

The IMF cut the 2016 growth outlook for both the euro area and the U.K. on Tuesday by 0.2 percentage points.

The 19 economies that use the euro currency are now seen growing by an average of 1.5 percent this year, while the U.K. economy is seen expanding by 1.9 percent.

EM gloom

The Washington-D.C. based organization also turned more bearish on many emerging and low-income countries.

Some of the countries suffering the biggest growth downgrades were oil exporters.

Nigeria is now seen growing by 2.3 percent in 2016, 1.8 percentage points less than the 4.1 percent forecast by the IMF in January.

Russia's economy is now to shrink by 1.8 percent, rather than the 1.0 percent forecast at the start of the year.

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Brazil, which is mired in a stiff recession, is seen shrinking by 3.8 percent, as it did in 2015.

"Several large emerging market economies face deep contractions due to internal political strife or geopolitical pressures and a number of low-income countries suffer El Nino-related drought or flooding. The costs could escalate," Obstfeld said.

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