Dubai: Global economic recovery will be slow as growth is expected to remain tepid for some time, said Christine Legarde, managing director of the International Monetary Fund (IMF).
Speaking at the Global Women’s Forum in Dubai on Tuesday, the IMF chief said the global economic growth is going to average slightly above 3 per cent for the next three years and with the recovery going to be a slow process across the world except a few countries like India where the GDP growth is going to be in excess of 6.5 per cent.
“Soft consumer demand in the United States and Japan and weakness in emerging markets due to worries over plunging oil and commodity prices and capital outflows from China were among the main risks,” she said.
In its latest global economic outlook, the IMF had projected US economic growth at 2.6 per cent for both 2016 and 2017, down 0.2 percentage point in both years from the October forecast. An acceleration of US output is seen dimming as dollar strength weighs on manufacturing and lower oil prices curtail energy investment.
In Europe, lower oil prices will help support private consumption, so the IMF said it added 0.1 percentage point to its 2016 euro area growth forecast, bringing it to 1.7 per cent, where it will remain for 2017.
Ruling out the possibility of global economy slipping into a recession, the IMF chief said, the world can sustain growth above 3 per cent. A global recession is loosely defined as growth below the roughly 2.5 per cent needed for the world economy to keep up with an expanding population.
Despite the slowing growth in key emerging economies such as Russia, Brazil and the oil exporting countries, improving prospects of Europe, strong growth in India and China maintaining growth above 6 per cent even in the face of its plans to deliberately slowdown growth to reorient the economy.
“We have all the reasons to believe it will be a soft landing for China in the current slowin happening there. In fact it is a deliberate slowing down of the economy to reorient it from heavy manufacturing to lighter manufacturing with increased focused on consumption and service-led growth and lower dependence on exports,” said Legarde.
The slowing Chinese growth is expected to keep the global commodities demand down, with slowing growth in major emerging markets adding downward pressure on commodities an energy demand.
In the emerging markets, she said Brazil will stay mired in recession in 2016. With output projected to contract 3.5 per cent, a 2.5 percentage-point downward shift from the previous IMF forecast, there will be essentially no growth in 2017 as Latin America’s largest economy struggles with lower Chinese demand.
Many emerging market economies are struggling amid reduced demand for oil and other commodities from China. “Many commodity exporters, especially, low income nations that rely heavily on exporting oil are facing huge difficulties. Several countries are running out of money because of cheap oil,” she said
While the Gulf countries have been relying on accumulated reserves to tide over revenue shortfall, low income oil exporters like Nigeria, Azerbaijan and Venezuela are looking at funding from multilateral agencies such as the World Bank and the IMF.
