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Risks to global growth outlook skewed to downside: IMF
18
Jan '17
Courtesy: IMF
Courtesy: IMF
Risks to the global growth outlook are two sided but are assessed to be skewed to the downside, especially over the medium term. Economic activity in the advanced economies and emerging market and developing economies (EMDEs) is forecast to accelerate in 2017-18, with global growth projected to be 3.4 percent and 3.6 percent, respectively.
 
“While the balance of risks is viewed as being to the downside, there are also upside risks to near-term growth. Specifically, global activity could accelerate more strongly if policy stimulus turns out to be larger than currently projected in the United States or China,” says the January 2017 Update of World Economic Outlook, released by the International Monetary Fund (IMF).
 
If the support to activity from policy stimulus in the US and/or China turns out to be larger than what has been incorporated into current IMF forecasts, it would result in a stronger pickup of activity in their trading partners unless the positive spillovers are tempered by protectionist trade policies. Upside risks also include higher investment if confidence in the recovery of global demand strengthens, as some financial market indicators seem to suggest. 
 
“Notable negative risks to activity include a possible shift toward inward-looking policy platforms and protectionism, a sharper than expected tightening in global financial conditions that could interact with balance sheet weaknesses in parts of the euro area and in some emerging market economies, increased geopolitical tensions, and a more severe slowdown in China,” says the report.
 
Protectionist pressures could further intensify if global imbalances widen coupled with sharp exchange rate movements in response to major policy shifts, warns the report. Increased restrictions on global trade and migration would hurt productivity and incomes, and take an immediate toll on market sentiment.
 
In those advanced economies where balance sheets remain impaired, an extended shortfall in private demand and inadequate progress on reforms (including bank balance sheet repair) could lead to permanently lower growth and inflation, with negative implications for debt dynamics. 
 
In some large emerging market economies, high corporate debt, declining profitability, weak bank balance sheets, and thin policy buffers imply that these economies are still exposed to tighter global financial conditions, capital flow reversals, and the balance sheet implications of sharp depreciations. 
 
In many low-income economies, low commodity prices and expansionary policies have eroded fiscal buffers and led in some cases to a precarious economic situation, heightening their vulnerability to further external shocks.
 
Non-economic factors that could increase the risk of achieving the projected global growth include civil war and domestic conflict in parts of the Middle East and Africa, the tragic plight of refugees and migrants in neighbouring countries and in Europe, acts of terror worldwide, the protracted effects of a drought in eastern and southern Africa, and the spread of the Zika virus. (RKS)

Fibre2Fashion News Desk – India


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