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article imageIMF predicts global growth still to be subdued this year

By Ken Hanly     Oct 4, 2016 in Business
The IMF predicted global growth to be sluggish at 3.1 percent in 2016 improving slightly to 3.4 percent next year. This is the same level of growth predicted in the last IMF report in July.
The October 2016 IMF World Economic Outlook warned that slow growth in advanced economies could very well fuel anti-trade settlement which could stifle growth even more. The IMF urged countries to use monetary, fiscal, and structural policies that would encourage growth. The report cited a slowdown in the US and the UK Brexit vote as keeping growth subdued.
However, the IMF admitted that its views on the immediate effect of the Brexit vote had been too pessimistic. The IMF predicted that the UK would be the fastest growing economy in the G7 at 1.8 percent but was still predicting the negative effect of the Brexit would cut growth to just 1.1 percent next year.
The IMF chief economist Maurice Obsfeld said: “Taken as a whole, the world economy has moved sideways. We have slightly marked down 2016 growth prospects for advanced economies while marking up those in the rest of the world." Obsfeld worried that the slow recovery from the financial crisis 8 years ago might lead to a populist reaction against free trade and more protectionist demands. Obsfeld considered such a development quite negatitvely: “It is vitally important to defend the prospects for increasing trade integration. Turning back the clock on trade can only deepen and prolong the world economy’s current doldrums.” Both candidates for presidency in the US have spoken out against free trade agreements.
The IMF report recommended that easy money policies be continued to encourage growth. It also suggested spending should be increased on education, technology and infrastructure. Measures to alleviate inequality were also urged.
In 2016 advanced economies will grow by just 1.6 percent down from 2.1 percent last year and also from the forecast of 1.8 percent back in July. The US is now forecast to grow this year by 1.6 percent, down from July at 2.2 percent. Next year it is predicted to grow by 2.2 percent. The IMF recommended that any increases by the Federal Reserve in interest rates should be gradual and after signs that wages and prices are firming for certain.
The Euro area was set to expand by 1.7 percent this year and 1.5 percent next, below the 2 percent growth in 2015. The report recommends the area maintain its existing easy money stance and expand it if needed through expanding asset purchases. Japan the world's 3rd largest economy would have low growth at just 0.5 percent this year and only 0.6 percent for 2017. The world's second largest economy, China, is expected to grow by 6.6 percent this year, down from 6.9 percent next year. In 2017 growth will slow slightly to 6.2 percent. India with a growth rate of 7.6 percent this year is growing the fastest of any of the major world economies.
Many African countries were hurt by lower commodity prices with South Africa barely growing and Nigeria expanding by 1.7 percent. However, other African countries such as Ivory Coast, Kenya and Senegal grew at more than 5 percent. Many Latin American countries are seeing contraction with Venezuelan output declining by some 10 percent this year and another 4.5 percent in 2017. Brazil will contract 3.3 percent this year but grow slightly next year by 0.5 percent.
The IMF also downgraded the forecast for the growth of the Canadian economy. This year growth is predicted to be 1.2 percent, down from 1.4 percent in July. For 2017 growth is predicted to be 1.9 percent rather than 2.1. The main factors in the decline are the wildfires in Alberta, the low price of oil, and the relative slowdown in the growth of the US economy.
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