The Economy

IMF Cuts 2016 Global Growth Forecast to 3.4%

'Unless the key transitions in the world economy are successfully navigated, global growth could be derailed,' said the IMF's chief economist.
Matthew HellerJanuary 20, 2016
IMF Cuts 2016 Global Growth Forecast to 3.4%

The International Monetary Fund is continuing to chip away at its global growth forecast for 2016 due to concerns over China’s economic slowdown, lower commodity prices, and strains in some large emerging market economies.

In the latest update to its World Economic Outlook, the IMF downgraded growth this year by 0.2 percentage point to 3.4%, a tepid improvement on 2015’s 3.1% growth rate. In October, it had predicted 3.6% growth for 2016 and, in July, 3.8% growth.

“It is going to be a year of great challenges,” IMF chief economist Maurice Obstfeld said. “Unless the key transitions in the world economy are successfully navigated, global growth could be derailed.”

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The IMF also shaved 0.2 points off its estimates for the U.S. in 2016 and 2017, predicting 2.6% growth in both years and noting that the U.S. economy was seen as marking time rather than gaining momentum.

The fund identified “three key transitions” that continue to influence the global outlook — the gradual slowdown and rebalancing of economic activity in China away from investment and manufacturing toward consumption and services; lower prices for energy and other commodities; and a gradual tightening in monetary policy in the United States.

“Prospects of a gradual increase in policy interest rates in the United States as well as bouts of financial volatility amid concerns about emerging market growth prospects have contributed to tighter external financial conditions, declining capital flows, and further currency depreciations in many emerging market economies,” the IMF said.

The IMF left its forecast for China’s economic growth to cool to 6.3% this year and 6% next year, down from 6.9% in 2015.

The World Bank warned earlier this month that the current slowdown in four of the five largest emerging economies could combine with turmoil in the financial markets to create a “perfect storm” for the global economy.