IMF cuts world growth forecast, warns over Brexit

Wednesday, Apr 13, 2016,11:04 IST By metrovaartha A A A

Washington | The International Monetary Fund has said that the global economy faces wide-ranging threats from weak growth and rising protectionism, warning of possible severe damage should Britain quit the European Union.

The Fund cut its global forecast for the third straight quarter, saying economic activity has been too slow for too long, and stressed the need for immediate action by the world’s economic powers to shore up growth. It said intensifying financial and political risks around the world, from volatile financial markets to the Syria conflict to global warming, had left the economy increasingly fragile and vulnerable to recession.

The IMF raised concerns over fraying unity in the European Union under pressure from the migration crisis and the Brexit possibility. And it pointed to the contractions in large emerging market economies, most notably Brazil, where the economic downturn has been accompanied by deep political crisis that has President Dilma Rousseff facing impeachment.

Seeing a broad fall in trade and investment, the IMF cut its forecast for world growth this year to a sluggish 3.2 per cent, 0.2 percentage points down from its January outlook and down from the 3.8 per cent pace expected last July. That reflects a glummer view of growth in both developed and emerging economies, with the forecasts for Japan and oil-dependent Russia and Nigeria all sharply lowered. Growth expectations for most leading economies were pared back by 0.2 percentage points. The outlook for the United States – hit by the impact of the strong dollar – was trimmed to 2.4 per cent this year, from 2.6 per cent in January. Only the pictures in China and developing eastern Europe were better. But at a slightly upgraded pace of 6.5 per cent growth, China was still on track for a significant slowdown from last year.

The growth downgrade was expected but the tone of the IMF message was more dire than in recent months. It came as an increasing number of countries are approaching the IMF and World Bank for financial support.

Angola, with its finances devastated by the crash in oil prices, asked the IMF last week for a three-year bailout program. And the World Bank said requests for loan support had reached levels seen only during financial crises. IMF chief economist Maurice Obstfeld said yesterday there was a risk of a full stall in global growth without efforts to boost investment and demand. The weaker is growth, the greater the chance that the preceding risks, if some materialize, pull the world economy below stalling speed, he said. Lower growth means less room for error.