The International Monetary Fund's latest World Economic Outlook foresees lower global growth compared to last year, with modest pickup in advanced economies and a slowing in emerging markets, primarily reflecting weakness in some large emerging economies and oil-exporting countries.
Six years after the world economy emerged from its broadest and deepest postwar recession, the holy grail of robust and synchronised global expansion remains elusive, said Maurice Obstfeld, the IMF's economic counsellor and director of the research department.
Despite considerable differences in country-specific outlooks, the new forecasts mark down expected near-term growth marginally but nearly across the board. Moreover, downside risks to the world economy appear more pronounced than they did just a few months ago, Obstfeld said.
Global real GDP grew at 3.4 per cent last year, and is forecast to grow at only 3.1 per cent this year. Growth is expected to rebound to 3.6 per cent next year.
These forecasts reflect a world economy that is at the intersection of at least three powerful forces, Obstfeld noted. First, China's economic transformation away from export- and investment-led growth and manufacturing in favour of a greater focus on consumption and services; second, and related, the fall in commodity prices; and third, the impending increase in US interest rates, which can have global repercussions and add to current uncertainties.
In this global environment, with the risk of low growth for a long time, the WEO underlines the need for policymakers to raise actual and potential growth.
Growth in advanced economies is projected to increase modestly to 2 per cent this year and 2.2 per cent next. This year's pickup reflects primarily a strengthening of the modest recovery in the euro area and a return to positive growth in Japan, supported by declining oil prices, accommodative monetary policy, and improved financial conditions, and in some cases, currency depreciation.
While growth is expected to increase in 2016, especially in North America, medium-term prospects remain subdued, reflecting a combination of lower investment, unfavorable demographics, and weak productivity growth.
Growth prospects in emerging markets and developing economies vary across countries and regions. But the outlook in 2015 is generally weakening, with growth for these economies as a group projected to decline from 4.6 per cent in 2014 to 4.0 per cent in 2015.
External conditions are becoming more difficult for most emerging economies. The prospect of rising US interest rates and a stronger dollar has already contributed to higher financing costs for some borrowers, including emerging and developing economies. And while the growth slowdown in China is so far in line with forecasts, its cross-border repercussions appear larger than previously envisaged, including through weaker commodity prices and reduced imports.
The projected rebound in growth in emerging market and developing economies in 2016 therefore reflects not a general recovery, but mostly a less deep recession or a partial normalization of conditions in countries in economic distress in 2015 (including Brazil, Russia, and some countries in Latin America and in the Middle East), spillovers from the stronger pickup in activity in advanced economies, and the easing of sanctions on the Islamic Republic of Iran.
Growth in low-income developing economies is expected to slow to 4.8 per cent in 2015, from 6 per cent in 2014, in large part due to weak commodity prices and the prospect of tighter global financial conditions. Some countries (e.g., Kyrgyz Republic, Mozambique) have been running large current account deficits, benefiting from easy access to foreign savings and abundant foreign direct investment, especially in resource-rich countries, and hence are particularly vulnerable to external financial shocks.