After hints over the past couple of week’s the IMF has officially downgraded its forecast for global GDP for 2015 to 3.1% but it still expects a rebound to 3.6% in 2016.
Both these forecasts reflect a 0.2% downgrade for the IMF from its last publication of the World Economic Outlook in July. And, the IMF says the new outlook reflects the “intersection of at least three powerful forces” which are buffeting the global economy.
First, China’s economic transformation—away from export- and investment-led growth and manufacturing, in favor of a greater focus on consumption and services; second, and related, the fall in commodity prices; and third, the impending increase in U.S. interest rates, which can have global repercussions and add to current uncertainties.
The break up of growth once again reflects the reality that even though emerging markets are slowing they remain the key engine of global growth. Developed markets are forecast to growth 2% in 2015 and 2.2% in 2016 while developing market growth will slow from 4.6% in 2014 to 4% this year, and 4.5% next year.
This is the “fifth straight year of slowing growth” in developing markets, the IMF says. Next years expected rebound in developing markets “reflects not a general recovery, but mostly a less deep recession or a partial normalization of conditions in countries in economic distress in 2015.”
It’s hardly an upbeat outlook and the Fund says that “given the distribution of risks” to the outlook global growth could still fall short of these already downgraded forecasts. It list five key areas of risk and concern that could drag growth lower.
- Lower oil and other commodity prices, which although benefiting commodity importers, complicate the outlook for commodity exporters, some of whom already face strained initial conditions (e.g., Russia, Venezuela, Nigeria).
- A sharper-than-expected slowdown in China, if the expected rebalancing toward a more market-based and consumption-driven growth proves more challenging than expected.
- Disruptive asset price shifts and a further increase in financial market volatility could involve a reversal of capital flows in emerging market economies. Further, renewed concerns about China’s growth potential, Greece’s future in the euro area, the impact of sharply lower oil prices, and contagion effects could be sparks for market volatility.
- A further appreciation of the U.S. dollar could pose balance sheet and funding risks for dollar debtors, especially in some emerging market economies, where foreign–currency corporate debt has increased substantially over the past few years.
- Increased geopolitical tensions in Ukraine, the Middle East, or parts of Africa could take a toll on confidence.
In the end the Fund says it all means the global economy faces a longer-term outlook which presents the prospects of “low growth for a long time.”
Here’s a table of their latest forecasts with the revisions from July’s release.