IMF slashes world growth forecasts and sounds alarm over fragile recovery - as well as warning on Brexit

Jake Cordell
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Growth in the global economy is on shaky foundations, according to the IMF's latest World Economic Outlook
Growth in the global economy is on shaky foundations, according to the IMF's latest World Economic Outlook (Source: Getty)

The world is facing an onslaught of risks which could upset the economic recovery, the International Monetary Fund (IMF) has warned, as it cut its forecasts for growth in the global economy - and raised alarm bells about the impact of Brexit for the UK.

The IMF’s half-yearly world economic outlook, published today, said everything from weak growth in Europe, volatile oil prices, the Chinese slowdown, a commodities slump and falling asset prices could destabilise an already precarious world economy.

This year, the IMF expects economic output to expand by 3.2 per cent, down from a 3.4 per cent prediction made just three months ago. In 2017, it predicted growth of 3.5 per cent - a 0.1 per cent cut on January’s outlook.

Read more: IMF tells world to lower taxes to spur growth

“The global recovery has weakened further amid increasing turbulence,” the IMF said. “Activity softened towards the end of 2015 in advanced economies, and stresses in several large emerging market economies showed no signs of abating.”

In advanced economies, “weak external demand, further exchange rate appreciation - especially in the United States - and somewhat tighter financial conditions will weigh on the recovery”.

“If sustained, these developments could further weaken growth, with risks of a stagnation scenario with persistent negative output gaps and excessively low inflation.”

April 2016 growth forecasts

Country 2016 forecast (change from January) 2017 forecast (change from January)
United States 2.4 (down 0.2) 2.5 (down 0.1)
Eurozone 1.5 (down 0.2) 1.6 (down 0.1)
Japan 0.5 (down 0.5) -0.1 (down 0.4)
UK 1.9 (down 0.3) 2.2 (no change)
Canada 1.5 (down 0.2) 1.9 (down 0.2)
Russia -3.7 (down 0.8) -1.8 (down 0.2)
China 6.5 (up 0.2) 6.2 (up 0.2)
India 7.5 (no change) 7.5 (no change)
Brazil -3.8 (down 0.3) 0 (no change)
Mexico 2.4 (down 0.2) 2.6 (down 0.3)
Saudi Arabia 1.2 (no change) 1.9 (no change)
Nigeria 2.3 (down 1.8) 3.5 (down 0.7)
South Africa 0.6 (down 0.1) 1.2 (down 0.6)

Britain’s economy is chalked up to grow by 1.9 per cent this year - a 0.3 per cent cut from January and the second sharpest revision of any member of the G7. Nevertheless, that will still trail only the United States among the group of seven rich countries, which is expected to grow by 2.4 per cent this year and 2.5 per cent in 2017.

“In the United Kingdom, growth is expected to be driven by domestic private demand supported by lower energy prices and a buoyant property market,” the IMF reported.

However, it added that an exit from the EU could do "severe regional and global damage by disrupting established trading relationships".

Despite the pessimism, India and China provided a few bright spots. The IMF upgraded its outlook for China, which it expects to grow by 6.5 per cent this year - at the bottom of the Chinese government’s target range of between 6.5 and seven per cent.

Read more: Is the IMF going to pull out of the troika?

India will continue to power ahead as the fastest growing major economy - expanding by 7.5 per cent this year and next.

“Growth [in India] will continue to be driven by private consumption, which has benefited from lower energy prices and higher real incomes. With the revival of sentiment and pickup in industrial activity, a recovery of private investment is expected to further strengthen growth,” the IMF said.

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