International Monetary Fund cuts global growth forecast

“Growth will benefit from recent policy reforms, a consequent pickup in investment, and lower commodity prices”, the International Monetary Fund said in latest World Economic Outlook (WEO) released Tuesday ahead of the World Bank-IMF annual meetings in Lima (Peru).

The Global Stability Report said that financial stability had improved since the IMF’s last report in April 2015 but risks remained.

Vinals said Western economies had shown a few improvement in the previous year, but he put that down to low inflation and a plummet in oil prices. At the same time, it will help “enhance the level of China’s participation in global economic cooperation”.

The fund predicts the United States will grow 2.6 percent this year, up from a July forecast of 2.5 percent and from 2.4 percent growth last year.

It slashed SA’s forecast for this year to 1.4% from 2% in July, and for next year lowered it to 1.3% from 2.1%.

Russian Federation was also seen suffering a deeper downturn in 2015, with its economy expected to shrink by 3.8%, nearly half a percentage point more than previously expected.

The risk is that shocks from bankruptcies in the developing world’s private sector, particularly in heavily commodities-dependent Latin American economies, could be amplified in global financial markets.

He identified the threat of recession hanging over emerging economies, the legacy of debt and discord in Europe and the weakened global markets as the main threats to the global economy.

Growth in advanced economies is projected to increase modestly this year and next.

Also, the International Monetary Fund has downgraded its growth forecast for 2016, reducing the figure to 3.6 percent from 3.8 percent.

In the second quarter, India posted a slower-than-expected 7% growth.

Corporate debt in emerging markets quadrupled between 2003 and 2014, the report said adding global drivers have played an increasing role in leverage growth, issuance, and spreads.

Growth in advanced economies is projected to increase modestly to 2 per cent this year and 2.2 per cent next.

Viñals also warned on the perils of the excess of credit to which many countries are exposed, citing China as the most exposed country relative to the size of its economy.

The report said that the situation in emerging markets was a concern because they “account for a growing share of world output and will still account for the lion’s share of world growth”.

The global economy grew at an average rate of 4.5 per cent in the seven years to 2007.