Despite the sharp drop in the price of oil, the International Monetary Fund (IMF) has cut its global economic growth forecast for 2015 from 3.8% to 3.5%, and for 2016 from 4% to 3.7%. The growth estimate for 2014 is 3.3%. The reasons for the pessimistic outlook are: expectations of a slowdown in China; an emerging recession in Russia; and continued weakness in the euro block.
“New factors supporting growthlower oil prices, but also depreciation of euro and yenare more than offset by persistent negative forces, including the lingering legacies of the crisis and lower potential growth in many countries, ” the IMF’s reports says.
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“At the country level, the cross currents make for a complicated picture, ” said Olivier Blanchard, IMF Economic Counsellor and Director of Research, “It means good news for oil importers, bad news for oil exporters. Good news for commodity importers, bad news for exporters. Continuing struggles for the countries which show scars of the crisis, and not so for others. Good news for countries more linked to the euro and the yen, bad news for those more linked to the dollar.”
The IMF’s downbeat forecast comes a few days after the World Bank cut its global economic growth forecast for 2015 from 3.4% to 3%. The previous forecast was published in June last year. The US is the only major economy to have its growth forecast revised upwards in the IMF’s forecast, from 3.1% to 3.6%, because of a rise in private domestic demand supported by the fall in the oil price, and because of the Federal Reserve’s supportive monetary policy.
For emerging and developing markets, the IMF projects stable growth at 4.3% in 2015, rising to 4.7% in 2016, a downward revision from October 2014.
The IMF names three main factors for the downward shift:
“First, the growth forecast for China, where investment growth has slowed and is expected to moderate further, has been marked down to below 7 percent. The authorities are now expected to put greater weight on reducing vulnerabilities from recent rapid credit and investment growth and hence the forecast assumes less of a policy response to the underlying moderation. This lower growth, however, is affecting the rest of Asia.
“Second, Russia’s economic outlook is much weaker, with growth forecast downgraded to 3.0 percent for 2015, as a result of the economic impact of sharply lower oil prices and increased geopolitical tensions.
“Third, in many emerging and developing economies, the projected rebound in growth for commodity exporters is weaker or delayed compared with the October 2014 WEO projections, as the impact of lower oil and other commodity prices on the terms of trade and real incomes is taking a heavier toll on medium-term growth. For many oil importers, the boost from lower oil prices is less than in advanced economies, as more of the related windfall gains accrue to governments (for example, in the form of lower energy subsidies).”
The IMF has cut its growth forecast for the euro block in 2015 by 0.2% to 1.2%. The forecast for Japan is also cut by 0.2%, to 0.6%.
Published by Globes [online], Israel business news – www.globes-online.com