Global growth on a firm footing

The International Monetary Fund on Monday kept its growth forecasts for the world economy unchanged for this year and 2018 at 3.5 per cent and 3.6 per cent respectively.

In an updated World Economic Outlook, the IMF said global gross domestic product growth would remain unchanged from estimates issued in April, although it revised up growth expectations for the eurozone and China.

“While risks around the global growth forecast appear broadly balanced in the near term, they remain skewed to the downside over the medium term,” the IMF said in updated forecasts.

The fund said the projected global growth rates for 2017-18, though higher than the 3.2 per cent estimated for 2016, are below pre-crisis averages, especially for most advanced economies and for commodity-exporting emerging and developing economies.

“Among the former, many face excess capacity as well as headwinds to potential growth from aging populations, weak investment, and slowly advancing productivity.”

The IMF lowered growth outlook for the Middle East and North Africa predicting slow pace over oil prices as the Saudi economy slides.

The executive board of the fund, which recently concluded the Article IV consultation with the UAE, said the second largest Arab economy’s financial buffers, safe-haven status, sound banks and diversified and business-friendly economy are helping it cope with the lower oil price shock. The IMF said in its report that economic activity is expected to strengthen gradually in the coming years with firming oil prices and other global indicators and an easing pace of fiscal consolidation. Non-oil growth is projected to rise to 3.3 per cent in 2017 from 2.7 per cent in 2016, reflecting increased domestic public investment and a pick-up in global trade.

In the latest update, the IMF cut its forecasts for US growth to 2.1 per cent for 2017 and 2018, slightly down from projections of 2.3 per cent and 2.5 per cent, respectively, just three months ago.

Maurice Obstfeld, the IMF’s economic counsellor and director of research, said the global economy has been the subject of considerable protectionist rhetoric, such as President Donald Trump’s proposed tariff on steel imported from China, but such talk had yet to translate into much action.

“What will happen in the future, we don’t know. These threats are in our downside thinking. They’re not built into our baseline (forecast) because hopefully they don’t happen, but there are risks,” Obstfeld said.

“China’s growth is expected to remain at 6.7 per cent in 2017, the same level as in 2016, and to decline only modestly in 2018 to 6.4 per cent. The forecast for 2017 was revised up by 0.1 percentage point, reflecting the stronger than expected outturn in the first quarter of the year underpinned by previous policy easing and supply-side reforms,” it said.

Obstfeld expected China’s economic expansion to slow down over the second half of 2017 as Chinese authorities looked to manage rapid credit growth and non-performing loans.

Growth in India is forecast to pick up further in 2017 and 2018, in line with the April 2017 forecast. “While activity slowed following the currency exchange initiative, growth for 2016 — at 7.1 per cent — was higher than anticipated due to strong government spending and data revisions that show stronger momentum in the first part of the year.”

With a pickup in global trade and strengthening domestic demand, growth in the ASEAN-5 economies is projected to remain robust at around 5 per cent, with generally strong first quarter outturns leading to a slight upward revision for 2017 relative to the April WEO.

The IMF said growth in the euro zone was now expected to be slightly stronger in 2018 and pointed to “solid momentum”.

It upgraded 2017 GDP growth projections for the eurozone to 1.9 per cent, up 0.2 percentage point from April. The eurozone growth would be slightly stronger at 1.7 per cent, a 0.1-percentage-point change from just three months ago.

The IMF revised down its 2017 forecast for the United Kingdom by 0.3 percentage point to 1.7 per cent, citing weaker-than-expected activity in the first quarter. It left its 2018 forecast unchanged at 1.5 per cent.

The IMF expected slightly higher growth in Japan this year of 1.3 per cent, revised from a forecast of 1.2 per cent in April. It cited stronger first-quarter growth buoyed by private consumption, investment and exports. Its forecast for Japan’s 2018 growth was unchanged at 0.6 per cent.

– issacjohn@khaleejtimes.com

author

Issac John

Associate Business Editor of Khaleej Times, is a well-connected Indian journalist and an economic and financial commentator. He has been in the UAE’s mainstream journalism for 35 years, including 23 years with Khaleej Times. A post-graduate in English and graduate in economics, he has won over two dozen awards. Acclaimed for his authentic and insightful analysis of global and regional businesses and economic trends, he is respected for his astute understanding of the local business scene.




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