Wealthy Nations Daily Update - IMF

Last week the International Monetary Fund (IMF) cut its forecast for global growth to 3.4% for 2016; from 3.6% it projected in October 2015. In the Fund’s quarterly World Economic Outlook, released on January 19, it also cut the forecast for growth in 2017 from 3.8% to 3.6%. Growth in 2015 was just 3.1%, the weakest since 2009, according to IMF data.

The IMF sees three main areas of risk in the coming year. First, the emerging market slowdown, it calculates that developing nations will slow for a 5th straight year. Secondly, China’s shift to consumer-led economy and lastly the Fed finally raising rates in December. Maurice Obstfeld, the IMF chief economist, said in an article accompanying the release “This coming year is going to be a year of great challenges and policy makers should be thinking about short-term resilience and the ways they can bolster it, but also about the longer-term growth prospects”. In developed economies the IMF expects the “modest and uneven” recovery to continue.

The IMF singled out Brazil with a particularly bearish view. It projected Brazil’s gross domestic product to contract 3.5% this year, compared with the previous forecast for a 1% contraction. It also revised its forecast for 2017 to zero growth from a previous outlook of 2.3% expansion. According to economists, the Brazilian economy shrank by 3.7% last year, although we will not know the official growth figures (or lack of) until they are published in March.

Another country highlighted by the IMF was Venezuela. Alejandro Werner, director of the IMF’s Western Hemisphere Department noted “the longstanding policy distortions and fiscal imbalances” that preceded the downturn in the oil price were now exacerbated by them. Oil accounts for the vast majority of Venezuela’s exports. Werner went on to say “with inflation predicted to hit 720% this year, up from 2015’s rate of 275%, which was already the world’s highest. The resulting shortages of essential goods, including food, are exacting a tragic toll”.

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