International Monetary Fund cuts FY16 world GDP target to 3.4%, maintains India outlook

China’s economic growth is expected to slow to 6.3 percent in 2016 and 6.0 percent in 2017, the International Monetary Fund (IMF) said on Tuesday when releasing its bi-annual World Economic Outlook.

Obstfeld said China was undergoing a process of rebalancing which entails a shift from manufacturing to services and investment to consumption and a slower growth path was something that had been anticipated.

The fund says that steeper slowing of demand in China remains a risk to global growth and that weaker-than-expected Chinese imports and exports are weighing heavily on other emerging markets and commodity exporters.

It warned that unless the key transitions in the world economy are successfully navigated, global growth could be derailed. The outlook for the next year was lowered to 3.6 percent from 3.8 percent.

The report also argues that Brazil’s recession will continue for the entirety of 2016, with output contracting 3.5%, a 2.5% downward shift from the previous forecast.

The report advises the developed countries to try to growth by investing in productive capital, with a focus on the strengthening of the labor market and creation of jobs.

This is a cut in growth of 0.2% in each year from when the agency published its last forecasts in October.

Any further slide in prices, combined with still tepid growth could suck the world back into a deflationary vortex, said Mr Obstfeld.

The IMF has downgraded its global growth projections for this year and the next. Most countries in sub-Saharan Africa will see a gradual pickup in growth, but only to rates that remain lower than those achieved during the past decade.

“There is a serious concern about deflationary pressures which go beyond what is being caused by falling commodity prices”, said the U.S. economist, who took over as head of the IMF’s research in October. “We may be in for a bumpy ride this year, especially in the emerging and developing world”, he said.

The IMF marked down its forecast for emerging and developing economies to 4.3 percent this year, from a projection of 4.5 percent in October, compared with 4 percent in 2015.

Oil prices have crashed from around $115 a barrel in June 2014 to under $30 a barrel this week.

The IMF also pointed to the potential problems of more political turbulence in countries like Brazil, where the Petrobras corruption scandal is challenging overall economic management, and regional geopolitical disturbances like those in the Middle East. Firstly, it said, “financial strains in many oil exporters reduce their ability to smooth the shock, entailing a sizable reduction in their domestic demand”. Earlier this month, the World Bank cut its forecast for global growth to 2.9 per cent from the 3.3 per cent growth it expected last June.