The International Monetary Fund (IMF) has lowered its growth forecast for the global economy for the fourth time in a year.
The organisation's latest World Economic Outlook is now predicting global growth of 3.2 per cent this year. A year ago, the forecast was for 3.8 per cent growth but Maurice Obstfeld, IMF chief economist, now describes the pace of growth as "increasingly disappointing" across all types of economies.
"Consecutive downgrades of future economic prospects carry the risk of a world economy that reaches stalling speed and falls into widespread secular stagnation," said Mr Obstfeld as he launched the latest report.
The forecast for growth in Nigeria suffered the largest downgrade because of the low price of crude oil, and Brazil and Russia were among many others predicted to experience weaker growth than previously forecast, though the figure for India remained unchanged.
China, however, received a slight upgrade because of strong growth in its services sector, although there was a warning that there could be "bumps along the way" as the Chinese economy shifts towards more consumer spending and services, rather than concentrating solely on manufacturing. Eventually, though, the IMF said the switch would eventually benefit China itself and the world.The Economist
magazine commented, "The scenario the fund seems most concerned about is a steady slide in global GDP growth that feeds on itself (by discouraging investment), only to exacerbate political tensions, which in turn makes fixing the economy even harder.
"Brazil shows how a bad economy can be made worse by political paralysis. Low growth might add to the "rising tide of inward-looking nationalism" in the rich world, said Mr Obstfeld.
Politics in America is moving against free trade. And for once, Greece is not the biggest risk factor in Europe. The refugee crisis in the European Union has already put pressure on its open-borders policy; there is a 'real possibility' that Britain might leave the EU.
"The IMF has some familiar remedies for what ails the global economy: keep monetary policy loose, augment it with fiscal stimulus where possible, and add some pro-growth reforms to the mix. Such action is needed to insure against the downside risks the fund identifies. But the world should also now be making contingency plans for a co-ordinated response if a financial shock hits."
The Wall Street Journal
said the IMF's "downbeat call comes at a time when investors are still licking their wounds from the market turmoil earlier this year".
It added, "While riskier markets such as stocks, oil and junk bonds have rebounded sharply since mid-February, robust demand for haven assets such as US Treasury debt suggests many remain cautious about piling into risky bets in a big way due to the uncertain outlook for economic growth.
"Tepid demand has been a main reason why government bond yields in the US, Germany, the UK and Japan – the foundation for global finance – remains stubbornly low."
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