IMF increases 2017 global growth forecast

The International Monetary Fund yesterday released its latest quarterly World Economic Outlook (WEO) Update, in which it projected the global economy will grow 3.5 percent this year, up from its January projection of 3.4 percent.    The International Monetary Fund (IMF) is raising its outlook for the worldwide economy in the coming year.
   The IMF yesterday released its latest quarterly World Economic Outlook (WEO) Update for 2017, titled “Gaining Momentum?” In the report, the fund projected the global economy will grow 3.5 percent this year, up from its January projection of 3.4 percent and a 3.1 percent annual growth rate in 2016.
   Looking ahead to 2018 and beyond, the IMF forecasts global growth to rise to 3.6 percent next year and continue to increase marginally, reaching 3.8 percent by 2020.
   The fund attributed the upgrade primarily to “buoyant” financial markets and a “long-awaited cyclical recovery in investment, manufacturing and trade.”
   Commodity prices, particularly crude oil, which plummeted to historic lows in the first few months of 2016, seem to be on the rebound, according to the report.
   “Stronger activity and expectations of more robust global demand, coupled with agreed restrictions on oil supply, have helped commodity prices recover from their troughs in early 2016,” wrote Maurice Obstfeld, IMF chief economist and author of the report. “Higher commodity prices have provided some relief to commodity exporters and helped lift global headline inflation and reduce deflationary pressures.
   “Financial markets are buoyant and expect continued policy support in China and fiscal expansion and deregulation in the United States,” he added. “If confidence and market sentiment remain strong, short-term growth could indeed surprise on the upside.”
   According to the IMF, growth will be led by emerging market and developing economies, projected to rise 4.5 percent in 2017 and 4.7 percent in 2018, with advanced economies forecast to grow 2 percent in each of the next two years.
   “Nevertheless, as emphasized in previous WEOs, the outlook for emerging market and developing economies remains uneven and generally below these economies’ average performance in 2000–15,” wrote Obstfeld. “A variety of factors weigh on their outlooks, including China’s transition to a more sustainable pattern of growth that is less reliant on investment and commodity imports; a protracted adjustment to structurally lower commodity revenues in some commodity exporters; high debt levels everywhere; sluggish medium-term growth prospects in advanced economies; and domestic strife, political discord, and geopolitical tensions in a number of countries.”
   The IMF held its projections for U.S. growth in 2017 steady at 2.3 percent, although that would still represent a sizable increase from the 1.6 percent growth seen in 2016.
   In other advanced economies, the fund raised Japan’s 2017 growth projection from 0.8 percent to 1.2 percent, the EU forecast from 1.6 percent to 1.7 percent, China’s projection from 6.5 percent to 6.6 percent, and the United Kingdom’s growth forecast from 1.5 percent in January to 2.0 percent.
   But the fund was quick to warn that significant downside risks to global growth remain, most notably the rising protectionist policies seen in advanced economies, particularly the U.S. and the UK.
   “One salient threat is a turn toward protectionism, leading to trade warfare,” Obstfeld said at a media briefing, according to a report from Reuters. This “would result in a self-inflicted wound that would lead to higher prices for consumers, lower productivity and therefore, lower overall real income for households,” he added.
   The report notes other downside risks to the forecast include tightening financial conditions in emerging markets, slow productivity growth in some advanced economies, geopolitical tensions, and terrorism.
   In order to protect against these risks, policy makers should adopt a “do no harm” approach, avoiding new barriers to international trade, keeping financial regulations in place, and boosting investment and growth by investing in people and encouraging multilateral cooperation, the IMF said.