- Title: IMF says global growth to stay weak, warns of populist fallout
- Date: 4th October 2016
- Summary: WASHINGTON, D.C., UNITED STATES (OCTOBER 4, 2016) (REUTERS) INTERNATIONAL MONETARY FUND (IMF) OFFICIALS SITTING DOWN THE EVENT (SOUNDBITE) (English) IMF CHIEF ECONOMIST, MAURICE OBSTFELD, SAYING: "Global growth remains weak even though it shows no noticeable deceleration over the last quarter. The new world economic outlook sees a slowdown for the group of advanced economies in 2016 and then offsetting pick up for emerging and developing economies. Taken as a whole the world economy is moving sideways. Without a determined policy action to support economic activity over the short and longer terms subpar growth at recent levels risks feeding on itself through the negative economic and political forces it is unleashing." IMF OFFICIALS (SOUNDBITE) (English) IMF CHIEF ECONOMIST, MAURICE OBSTFELD, SAYING: "U.S. growth is disappointed in 2016 but is partially offset by smaller upside surprises in Europe and Japan. Outside of the advanced economies emerging Asia has done better whereas sub-Saharan Africa as a whole has not, dragged down by its big commodity exporters despite a number of smaller countries benefiting from lower oil prices and doing quite well." IMF OFFICIALS (SOUNDBITE) (English) IMF CHIEF ECONOMIST, MAURICE OBSTFELD, SAYING: "The slow and incomplete recovery from crisis has been especially damaging in those countries where the distribution of income has continued to skew sharply toward the highest earners leaving little room for those in the lower brackets to advance. The result in some richer countries has been a political movement that blames globalization for all woes and seeks somehow to wall off the economy from global trends rather than to engage productively with foreign nations. Brexit is it is only one example of this tendency. In short growth has been too low for too long and in many countries its benefits have reached too few with political repercussions that are likely to depress global growth further." IMF OFFICIALS LISTENING TO REPORTER QUESTION (SOUNDBITE) (English) IMF CHIEF ECONOMIST, MAURICE OBSTFELD, ON TRUMP AND THE U.S. ELECTION, SAYING: "There has clearly been a lot of discussion in the in the election of changes which could be quite dramatic especially in terms of what had been us long standing positions on trade policy. I think these introduce an element of policy uncertainty into the mix and you know as we know uncertainty is not great for investors and for employment. So we'll see how this develops going forward. It's very hard to know what would actually happen, you know after the election, given the various checks and balances within the US government." IMF OFFICIALS LISTENING TO QUESTION (SOUNDBITE) (English) IMF CHIEF ECONOMIST, MAURICE OBSTFELD, ON THE FALLOUT OF BREXIT BEING BETTER THAN SOME MODELS, SAYING: "We felt that in view of the unprecedented nature of the vote there was a very wide range of uncertainty about what might happen. And that's why we presented a couple of different scenarios without necessarily you know picking out one or one or the other. You know in the event the market response really after the first day or so to the Brexit vote was much more favorable than I think anyone would have anticipated. Markets stabilized fairly quickly and had they not that could have generated a much more dramatic downside not only for the U.K. but for for Europe. Nonetheless I think it was wise of us to warn against those possibilities. In fact, I think it would have been malpractice not to think about those possibilities and clearly central banks did think about those possibilities. They did prepare for them. Markets knew they were preparing for them and I would credit that preparation in part for the mild response that we ended up, ended up seeing." IMF OFFICIALS LISTENING TO REPORTER
- Embargoed: 19th October 2016 14:45
- Keywords: IMF forecast IMF outlook IMF populist weak growth
- Location: WASHINGTON, D.C., UNITED STATES
- City: WASHINGTON, D.C., UNITED STATES
- Country: USA
- Topics: Debt Markets,Economic Events
- Reuters ID: LVA00152LBTQF
- Aspect Ratio: 16:9
- Story Text: The International Monetary Fund maintained its forecast for weak global growth on Tuesday (October 4) and warned that further stagnation will fuel more populist sentiment against trade and immigration that would stifle activity, productivity and innovation.
In the latest update of its World Economic Outlook, the IMF said that a drop in U.S. growth for 2016 due to a weak first-half performance would be offset by strengthening in Japan, Germany, Russia, India and some other emerging markets.
The Fund kept its overall global growth forecasts unchanged at 3.1 percent for 2016 and 3.4 percent for 2017 after cutting its outlook for five straight quarters.
"Taken as a whole, the world economy has moved sideways," IMF chief economist Maurice Obstfeld said.
"Without determined policy action to support economic activity over the short and longer terms, sub-par growth at recent levels risks perpetuating itself."
The new forecasts were released as global policymakers begin gathering in Washington for the IMF and World Bank annual meetings this week.
The IMF said advanced economies as a whole will see a weakening of growth in 2016, down 0.2 percentage point from July to 1.6 percent, while emerging market and developing economies will see a 0.1 percentage point gain in growth to 4.2 percent.
The IMF said its 2017 forecast for both groups was unchanged, with advanced economies forecast to grow 1.8 percent and emerging markets growing 4.6 percent.
The United States accounts for much of the decline in advanced economies, with a reduction to 1.6 percent growth from 2.2 percent forecast in July, due to a disappointing first-half performance caused by weak business investment and a draw-down of goods inventories.
Obstfeld said that statements made by candidates in the U.S. election calling for changes in U.S. trade policy "introduce an element of policy uncertainty into the mix and you know as we know uncertainty is not great for investors and for employment."
But he cautioned that it was hard to predict what changes might actually occur due to the checks and balances in the U.S. government.
The Fund also argued for a gradual approach to Federal Reserve interest rate hikes "tied to clear signs that wages and prices are firming durably."
Its growth forecast for Japan improved slightly due to government spending, a delay in a consumption tax increase and expansionary monetary policy, but only to a weak 0.5 percent in 2016 and 0.6 percent in 2017.
For Britain, the IMF lifted its 2016 forecast by 0.1 percentage point as retail spending has held up better than expected after the June vote to leave the European Union.
"The market response really after the first day or so to the Brexit vote was much more favorable than I think anyone would have anticipated. Markets stabilized fairly quickly and had they not that could have generated a much more dramatic downside not only for the U.K. but for for Europe," Obstelf said.
But it lowered its 2017 forecast by 0.2 percentage points to 1.1 percent on anticipation that uncertainty over separation from Europe will take a bigger toll on investment in the country.
Growth forecasts for China remained unchanged at 6.6 percent for 2016 and 6.2 percent for 2017 as strong policy support and credit growth were fueling domestic consumption.
India's growth will improve slightly to 7.6 percent in both years, while Russia will benefit from a rebound in energy prices.
Obstfeld said that persistently weak growth that leaves lower-income people behind has fueled a political movement "that blames globalization for all woes" and seeks to raise trade barriers, adding that the vote for "Brexit" was one example of this.
"In short, growth has been too low for too long, and in many countries its benefits have reached too few -- with political repercussions that are likely to depress global growth further," Obstfeld said.
The IMF said other risks to the outlook included further turbulence from China's transition towards a more consumer-driven economy, another drop in commodity prices, a sharp hike in trade barriers and a flare-up in geopolitical tensions.
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