The International Monetary Fund (IMF) has lowered its forecast for global economic growth by 0.2 percentage points. A sharp slowdown in China trade and weak commodity prices cited for adjustments.
The forecast was lowered to 3.4 percent this year and 3.6 per cent in 2017 – down from its projections in October – due to “turbulence” in world markets.
“We may be in for a bumpy ride this year, especially in the emerging and developing economies,” Maurice Obstfeld, the IMF’s Research Director, said at the launch of the IMF’s World Economic Outlook.
In Europe, lower oil prices should help support consumer activity, so the IMF said it added 0.1 percentage point to this year’s euro area growth forecast, bringing it to 1.7 percent.
All eyes on Chinese market volatility
The updated World Economic Outlook forecasts came as global financial markets have been roiled by worries over China’s slowdown – confirmed by Beijing on Tuesday – and oil prices plummeting to less than $30 (27 euros) a barrel.
The IMF maintained its previous China growth forecasts of 6.3 percent in 2016 and 6.0 percent in 2017, which represent sharp slowdowns from last year.
Concerns about Beijing’s grip on economic policy are now paramount among global investors’ risk list for this year after falls in its stock markets and the yen stoked worries that the economy may be rapidly cooling.
Shanghai’s stock market, which has plunged almost 20 percent since the start of this year, rallied 3.2 percent on Tuesday in characteristically erratic trade.
Analysts posited that China’s so-called “national team” investment group was buying shares to prevent a market sell-off, with one eye on the upcoming Chinese New Year holiday.
“The sharp rise today is, without a doubt, supported by the ‘national team’ as this is a good window for them to swoop in,” Phillip Securities analyst Chen Xingyu told the AFP news agency. “Only they have the resources to lift the market this fast.”
Unexpected moves in the yen exchange rate – after a surprise devaluation in August – has disturbed investors in recent weeks
Jittery markets, regional wars sours economies
The IMF report said continued market upheaval could also help drag growth lower globally if it leads to major risk aversion and currency depreciations, especially in emerging markets. Risks included further US dollar appreciation and an escalation of geopolitical tensions with civil wars in the Middle East.
The IMF said the outlook for an acceleration of US output was dimming as US dollar strength weighs on manufacturing and lower oil prices hinder energy investment.
US economic growth is now projected at 2.6 percent for both 2016 and 2017, down 0.2 percentage point in both years from the October forecast.
-DW.COM
