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IMF raises global growth forecasts, calls for reforms

Wednesday, October 11, 2017

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WASHINGTON, United States (AFP) — The International Monetary Fund yesterday bumped up its global growth forecasts, saying an upswing in the world economy would likely gather pace into next year.

But the global crisis lender called on governments to strike while the iron was hot, saying dangers for the current recovery lurked on the horizon and ambitious reforms were necessary for continued poverty reduction.

Global economic output should increase by 3.6 per cent this year and by 3.7 per cent in 2018, up marginally from forecasts published three months ago but well above growth seen in 2016, the IMF said in the latest update to a semiannual report on the world economy.

The new projections come as the IMF stages annual meetings this week with the World Bank.

“The picture is very different from early last year, when the world economy faced faltering growth and financial market turbulence,” IMF Research Director Maurice Obstfeld said in prepared remarks.

But Obstfeld said the current moment presented a fleeting opportunity to act, pointing to recent IMF warnings about sluggish growth in advanced economies, sharpening divides between rich and poor and bloated sovereign debt levels.

Meanwhile, weak oil prices along with violence and strife in the Middle East and Latin America threatened to undermine progress while – despite the mainly rosy forecasts – nearly one in five countries in the world was still expected to see negative per capita income growth this year.

NO 'CLIFF-EDGE' BREXIT

“The recovery is still incomplete in important respects, and the window for action the current cyclical upswing offers will not be open forever,” Obstfeld said.

In the latest version of its World Economic Outlook, the IMF now predicts advanced economies will grow by 2.2 per cent this year — 0.2 percentage points faster than a July estimate — before slowing to two per cent growth next year.

Emerging and developing countries are forecast to grow at a more robust 4.6 per cent, unchanged from July's prediction.

Rising global trade and exports should lift the Eurozone as a whole, pushing regional growth to 2.1 per cent this year, up from the 1.8 per cent recorded last year.

In Britain, however, the weakening pound has shrunk household incomes, and future relations with Europe remain in considerable doubt following voters' decision last year to exit the European Union.

The IMF now says GDP growth will slow this year and next, sliding three-tenths to 1.5 per cent by 2018.

Obstfeld told reporters that a “cliff-edge” Brexit, without a clear, negotiated process for reaching an agreement on economic relations with Europe, could create uncertainty and drag on British growth.

Prime Minister Theresa May's recent call for a two-year transition could create “a clear end point and a clear process during that period,” Obstfeld said.

Economic activity is strengthening in the US, with the 2017 forecast moving up a tenth of a percentage point since July's estimate to 2.2 per cent, slowing to two per cent next year.

But the Trump administration's policy proposals for tax cuts and stimulus appear mired in uncertainty.

ACTION 'WHILE TIMES ARE GOOD'

The IMF moved Russia's forecast for the year up by a sharp four-tenths to 1.8 per cent, marking a turnaround after two years of recession as oil prices stabilise and market confidence improves.

To meet their stated goal of doubling real GDP growth between 2010 and 2020, Chinese officials are expected to maintain high levels of public investment and pro-growth policies, with growth due to rise by 6.8 per cent this year and 6.5 per cent the next.

But economic shocks and slow-burning dangers from different directions could make all of this short-lived, according to the IMF.

Faster-than-expected interest rate hikes in the United States or Europe, commercial credit troubles in China, persistently low inflation in the developed world, a wholesale rollback of post-crisis financial industry rules, a sudden shift toward protectionism and geopolitical tensions could all weigh on growth — making reforms much harder.

Obstfeld said all of this called for action “that should take place now, while times are good”.

Countries that are near full employment should pay down public debts. Those with budget surpluses should spend on education and infrastructure.

Central banks should raise interest rates smoothly, and governments should invest in job training to bring down youth unemployment, Obstfeld said.

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