The International Monetary Fund (IMF) has lowered its forecast for global economic growth for this year and next, reducing this year’s number from the previous estimate made last October of 3.7% to a slightly lower 3.5%; the growth forecast for 2016 now stands at 3.7%.
At the same time, the IMF released a report showing China’s slowest growth in 24 years to just 7.4 percent in 2014.
Despite the one major boost for the global economy, i.e. the sharp fall in oil prices which is positive for most countries, the IMF expects additional negative factors, notably weaker investment, to offset any overall growth prospects.
Declining investment figures across the board indicate weakened expectations about the growth prospects for many developed and emerging economies over the next few years. Unstable growth means reduced opportunities for selling goods and services creating fewer incentives to invest. Taking the current situation in the Eurozone as an example, the IMF does see some amount of growth-- 1.2% in the euro area this year and 1.4% in 2016—but this is only a trifling.
Better than 2014
Regardless of the reduced estimations, IMF predicts that the world economy will grow faster than it did in 2014, which expanded 3.3 percent according to IMF figures. Much of this movement can be attributed to the accelerating recovery in the U.S., the world's largest economy with its IMF projected growth estimate raised to 3.6 percent from 3.1 percent for 2015.
"The recovery in the U.S. is quite strong and therefore it will continue, despite the appreciation of the dollar," Olivier Blanchard, the IMF's director of research, told reporters in Beijing in a briefing broadcast online.
Blanchard forecasts expansion in the more advanced economies at 2.4 percent in 2015, slightly higher than projected previously. He sees the same rate continuing in 2016. On the other hand, he expects growth in the developing economies to slide to 4.3 percent from an estimated 4.4 percent in 2014, and then recover to 4.7 percent in 2016.
In addition to the slowdown in Europe and the drop in China’s numbers, Japan and Russia are also recording slower growth. Blanchard sees Russia’s position as “quite bleak” receiving the sharpest downgrade of all advanced countries--3% this year and 1% next.
Pessimistic Japanese
With regard to Japan, most companies are pessimistic about a possible rebound in consumer demand citing the country’s shrinking and aging population as the cause of the country’s woes. With the 55 percent plunge in oil prices in U.S. dollar terms since September, however, the purchasing power of consumers and businesses in Japan and other countries has gone up considerably and has reduced pressure on central banks to raise interest rates to dampen inflation.
The IMF forecasts for the world economic growth are more positive than the predictions made last week by the World Bank that the global economy would grow 3 percent this year and 3.3 percent in 2016.