CHENNAI: The International Monetary Fund (IMF) on Tuesday cut its global growth forecast for the third time in less than a year to 3.4 per cent in 2016 and 3.6 per cent in 2017, down by 0.2 per cent for both years. A sharper than expected slowdown in China, weak commodity prices affecting Brazil and other emerging markets, a further appreciation of the dollar, an escalation of ongoing geopolitical tensions are some of the risks tilted to the downside, according to the IMF.
The projections come weeks after the World Bank revised its global growth outlook downwards by 0.4 per cent to 2.9 per cent. However, growth estimate for India has been kept unchanged at 7.5 per cent in 2016-17. A year before, India grew at 7.3 per cent.
“India and the rest of emerging Asia are generally projected to continue growing at a robust pace, although with some countries facing strong headwinds from China’s economic rebalancing and global manufacturing weakness,” IMF said adding, “Deepening local capital markets, improving fiscal revenue mobilisation, and diversifying exports away from commodities are also ongoing challenges in many of these economies.”
The downward revision in global growth was largely accounted for by Brazil, where a recession is proving to be deeper and more protracted than previously expected. Brazil’s economy is now projected to contract by 3.5 per cent in 2016 as against the October projection of 1 per cent contraction.
Meanwhile, the IMF has maintained its previous China growth forecasts of 6.3 per cent in 2016 and 6.0 per cent in 2017 — lower than 6.9 per cent in 2015 and 7.3 per cent in 2014.
“We don’t see a big change in the fundamentals in China compared to what we saw six months ago, but the markets are certainly very spooked by small events there that they find hard to interpret,” said Maurice Obstfeld, Economic Counselor, IMF in a videotaped statement.
He added that China was undergoing a process of rebalancing which entails a shift from manufacturing to services and investment to consumption and a slower growth path was something that had been anticipated.
“There is, however, uncertainty about the bumpiness of that ride. The markets are quite focused on what is going on because the spillovers from China to the rest of the world are quite significant both through their demands for imports and on the effect on commodity prices. That contributes to the volatility,” he said.