- Negative factors such as investment weakness and diminishing expectations will outweigh positive growth factors like cheap oil and the devaluation of the euro and yen.
- The US is the only major economy for which growth projections have been raised; US GDP forecast at 3.6% in 2015.
- Emerging markets to experience sluggish growth, as China weakness prevails.
The global economy will face sustained headwinds in the next two years, as Asian and European economies struggle to regain momentum, the latest outlook from the International Monetary Fund revealed this week.
The international lending institution representing 188 countries downgraded its 2015 global outlook to 3.5 percent and said growth would pick up to 3.7 percent in 2016. In October 2014 the IMF forecast growth of 3.8 percent and 4 percent in 2015 and 2016, respectively.
“The revisions reflect a reassessment of prospects in China, Russia, the euro area, and Japan as well as weaker activity in some major oil exporters because of the sharp drop in oil prices,” the four-page revision revealed on Monday.
“The United States is the only major economy for which growth projections have been raised,” the IMF added, raising America’s 2015 outlook to 3.6 percent from 3.1 percent. The world’s largest economy is then expected to grow 3.3 percent in 2016.
Virtually every major economy had its growth prospects slashed over the next two years. Japan is expected to grow 0.6 percent this year, down from a previous forecast of 0.8 percent. The world’s third-largest economy is forecast to grow only 0.8 percent in all of 2016.
The outlook on Russia turned bleak, with the IMF forecasting a 3 percent contraction in 2015. The country is expected to enter a recession that will last well into 2016. Russia will be impacted by a broad slowdown in China. The IMF expects China to grow just 6.8 percent 2015, undershooting Beijing’s modest target of 7 percent. 2014 was China’s weakest full-year of growth in 24 years, government data confirmed on Monday.
The 18 nations that share the euro are forecast to grow 1.2 percent this year, down from the October forecast of 1.4 percent. Germany, which forms the bedrock of the currency union, is forecast to grow just 1.3 percent, gripped by weak neighbouring economies and a potentially devastating sanctions war against Russia.
Despite the downward revisions, the global economy is expected improve in the next two years, as lower oil prices and the depreciation of major currencies like the euro and yen support growth. However, these developments will be “more than offset by negative factors, including investment weakness as adjustment to diminished expectations about medium-term growth continues in many advanced and emerging market economies,” Monday’s report added.
Advanced economies are forecast to grow 2.4 percent this year, thanks to a rapidly improving US economy. Emerging markets and developing economies are expected to grow 4.3 percent in 2015.