The International Monetary Fund on Tuesday cut its 2015 global economic growth forecast, as it factored in the global effects of the slowing economies in China and other emerging markets.
The IMF predicted 2015 world growth of 3.1 per cent, down 0.2 percentage points from the Washington-based crisis lender’s July forecast.
For 2016, the IMF pared its forecast by 0.2 points to 3.6 per cent.
Emerging market and developing economies had been the engine of global growth for years, as Europe and the United States lagged since the 2008 financial crisis.
Now, China’s growth is slowing, many commodities exporters are reeling from the crashes in oil and metals prices, and investment flows into emerging and developing countries have slowed sharply.
An August correction in Chinese share prices sent global stock markets reeling.
“In an environment of declining commodity prices, reduced capital flows to emerging markets and pressure on their currencies, and increasing financial market volatility, downside risks to the outlook have risen, particularly for emerging market and developing economies,” the IMF said in its World Economic Outlook.
The IMF predicts growth in advanced economies this year at 2 per cent and 2.2 per cent in 2016, up from 1.8 per cent recorded last year and 1.1 per cent in 2013.
For emerging markets and developing economies, the IMF forecasts 4 per cent growth this year, down from 4.6 per cent in 2014 and 5 per cent in 2013.
“For emerging market and developing economies as a whole, our forecast is that 2015 will mark the fifth consecutive year of declining growth,” IMF chief economist Maurice Obstfeld said.
In Asia, China is forecast to grow this year by 6.8 per cent and 6.3 per cent in 2016, while India is pegged at 7.3 per cent this year and 7.5 per cent next year.
China’s once-galloping growth has slowed as the government tries to implement a policy – long recommended by the IMF – of rebalancing the economy to increase domestic consumption and reduce dependence on exports.
The Chinese slowdown is “in line with forecasts,” but the “cross-border repercussions” have exceeded expectations, the IMF said.
The global economy is being buffeted by the Chinese slowdown, the fall in commodity prices and the looming tightening of interest rates in the United States, Obstfeld said.
“Amid these very important developments, near-term global growth remains moderate and uneven,” he said in Lima, where the IMF is holding its annual meeting this week.
The world faces “higher downside risks” than were apparent in July. “Robust and synchronized global expansion remains elusive,” Obstfeld said.
China’s slower growth rate – which still easily tops all the major advanced economies – is a major factor in weaker commodity prices. Reduced exports into the world’s most populous country from other economies in East Asia also weigh on those prices.
While growth in advanced economies is picking up, especially as the eurozone recovers from its long-running crisis, “deflationary pressures remain,” said Obstfeld, a former economic adviser to US President Barack Obama.
Uncertainty has hampered investment in many economies, only worsening the outlook for growth into the medium-term, feeding what Obstfeld called a “vicious cycle.” In some countries, political instability has deterred investment, he said.
Obstfeld, who took over the IMF’s economic research last month, noted the migration crisis in Europe, where refugees and others are streaming in from the Middle East and Africa.
“In its more extreme forms, political conflict has created a large global stock of displaced persons, both within and across borders,” he wrote. “The economic and social costs are immense.”