IMF downgrades global growth forecast

The IMF now expects growth of 3.5% this year, compared with the
previous estimate of 3.8% which it made in October.
The growth forecast for 2016 has also been cut, to 3.7%.
The downgrade to the forecasts comes despite one major boost
for the global economy - the sharp fall in oil prices, which is
positive for most countries.
The IMF expects that to be more than offset by negative factors,
notably weaker investment.
That in turn reflects diminished expectations about the growth
prospects for many developed and emerging economies over the
next few years. If business expects weaker growth, there is less
opportunity to sell goods and services and so less incentive to
invest.
Deflation concerns
The eurozone is a case in point. The IMF does expect the recovery
there to continue, but not strongly. It is estimating growth of 1.2%
in the euro area this year and 1.4% in 2016.
For the European Central Bank, the immediate priority is to tackle
the deflation, or falling prices, now under way.
Speaking to the BBC, the IMF's chief economist, Olivier Blanchard,
said deflation was an adverse and worrying force, but it was "not
the kiss of death… in itself, it's not going to derail the recovery".
However, he acknowledged that it was possible that deflation could
set off the eurozone's debt crisis once again. Falling prices are
particular problem for debtors, because their incomes - or for
governments, their tax revenues - may fall, but the debt payments
often do not.
The slowdown in China is another factor behind the revised
forecasts. On Tuesday, official figures showed that China's growth
slowed to 7.4% last year, from 7.7% in 2013.
Next year, the IMF growth forecast for China is 6.3%, compared
with an average of 10% over the three decades up to 2010.
IMF global economy growth rates &
projections (%)
Region 2013 2014 2015
projection
and
revision
2016
projection
and
revision
World 3.3 3.3 3.5 -0.3 3.7 -0.3
Advanced
economies
1.3 1.8 2.4 0.1 2.4 0
Emerging
market and
developing
economies
4.7 4.4 4.3 -0.6 4.7 -0.5
Other key economies, ordered by 2013
growth
China* 7.8 7.4 6.8 -0.3 6.3 -0.5
Nigeria 5.4 6.1 4.8 -2.5 5.2 -2.0
US 2.2 2.4 3.6 0.5 3.3 0.3
UK 1.7 2.6 2.7 0 2.4 -0.1
Russia 1.3 0.6 -3.0 -3.5 -1.0 -2.5
Euro area -0.5 0.8 1.2 -0.2 1.4 -0.3
Mr Blanchard said the IMF was "fairly confident that is going to be
an orderly slowdown". The report says that slower growth in China
will have important effects in other emerging economies in Asia.
US strength
The sharpest downgrade of all is for Russia, which is forecast to
see its economy contract by 3% this year and 1% next. That is the
result of the fall in oil prices and what the report calls increased
geopolitical tensions - in other words, the crisis in Ukraine and
Western sanctions on Russia.
There is also a sharp downgrade for Nigeria, another oil exporter,
although even the revised forecast of 4.8% for 2015 still shows
strong growth. Without the downgrade, Nigeria's growth would
have been very impressive.
There are some exceptions to the pattern of more downbeat
forecasts. The major one is the United States, now forecast to
grow at 3.6% this year and 3.3% in 2016.
This is well below China's figures, even allowing for the slowdown,
but that is to be expected. Emerging economies can grow more
rapidly by adopting technology that's already established in richer
nations.
For the UK, the forecast for this year is unchanged at 2.7% and is
cut slightly to 2.4% for 2016. Mr Blanchard sees the outlook for
the UK as favourable, but he said that the weakness of the
eurozone could act as "brake" on the British economy.
Crisis over?
So six years on from the most intense phase of the global financial
crisis, to what extent have we put it behind us?
Mr Blanchard told the BBC that many countries have, for all
practical purposes, done so - notably the US.
But there is another legacy "cramping the style of a number of
countries which have very high debt and have to be careful". He
says this will take a very long time to rectify. He describes Japan
as an extreme example.
His overall assessment: "Some of the legacies are going away.
Some of the legacies will take a long time. Things are improving.
Not quite as quickly as we would dream, but they do."