An uneven and brittle global recovery along with increased tensions in Russia and Ukraine is putting G20 economic growth targets championed by Australia at risk.
The IMF (International Monetary Fund) has released an update to world economic forecasts ahead of the Brisbane leaders summit this weekend.
The IMF says slow growth, with world forecasts lowered to 3.8% for 2015 (2.9% for Australia), highlights the importance of G20 commitments to lift global growth.
Australia led the G20 to additional 2% growth target over four years, adding $2 trillion to the global economy.
At the G20 finance ministers meeting in Cairns in September, Treasurer Joe Hockey said the G20 finance ministers are 90% of the way towards meeting the global growth target via 900 policy initiatives.
Hockey is also championing a global infrastructure initiative, reforms to the financial system and moves to close loopholes used by multinational companies to avoid paying tax.
In an update on the world economic outlook prepared for this weekend’s annual G20 leader meeting being held in Brisbane, the IMF says recent developments include a financial market correction, lower oil prices and some further signs of weakness in activity.
Equity prices, which trended up till late September, have declined, notably in emerging economies where risk spreads have increased.
“The recent increase in financial market volatility is a reminder of potential risks and potential further corrections,” the IMF says.
“While it is too early to identify the supply and demand factors at play, all else equal, the recent appreciable fall in oil prices, if sustained, will boost growth.”
However, downside risks are significant.
“Heightened geopolitical tensions and potential corrections in financial markets, including due to monetary policy normalisation, are the main short-term risks,” the IMF says.
“Other risks are low inflation/deflation in the euro area and low potential growth.”
The IMF says developments in Ukraine and Russia could trigger an escalation of sanctions and large spillovers in other parts of the world. Heightened geopolitical risks in the Middle East could lead to disruption in oil markets.