IMF Maintains Outlook For World Economy But Cuts US, UK View

Ashley Carr
July 25, 2017

The International Monetary Fund (IMF) downgraded its forecasts for growth in the United Kingdom and U.S. this year after a disappointing performance in the first quarter for both economies.

"Fiscal policy should support growth and potential output, as well as being inclusive", he told a briefing on the "World Economic Outlook Update" here today.

Projections for countries including France, Germany, Italy and Spain were increased thanks to better than expected growth figures in the first quarter and indications of "stronger momentum in domestic demand".

The IMF expects Japan, the world's third-largest economy, to grow 1.3 per cent this year, raising its April prediction by 0.1 percentage points.

According to the report, China's forecast for 2017 was revised up by 0.1 percentage point, signalling the stronger than expected outturn in the first quarter of the year underpinned by previous policy easing and supply-side reforms. And an upward revision of 0.2 percentage point from April to 6.4 percent was forecasted in China's 2018 growth.

"Growth is projected to rise in 2017 and 2018, but will barely return to positive territory in per capita terms this year for the region as a whole-and would remain negative for about a third of the countries in the region", the International Monetary Fund said via WEO.

"Market expectations of fiscal stimulus have also receded", it said.

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This growth was lower than any other Group of Seven economy and the International Monetary Fund upgraded its forecasts for Europe's main economies, such as Germany and France.

Obstfeld said the global economy has been the subject of considerable protectionist rhetoric, such as President Donald Trump's proposed tariff on steel imported from China, but such talk had yet to translate into much action.

He added that the country's headline inflation reached 5 per cent year-on-year in late 2016 - early 2017, reflecting rises in health and education cost, and had fallen close to the 4 per cent target by June this year.

According to the IMF, China's failure to continue focus on addressing financial sector risks and curb excessive credit growth could result in an abrupt growth slowdown, with adverse spillovers to other countries through trade, commodity price, and confidence channels. The Fund now expects President Trump's planned stimulus measures would have no much impact on U.S. economy in the absence of details of those plans.

The UK also saw a lowered forecast "due to economic performance so far in 2017 and because the impact of Brexit remains unclear", Obstfeld said.

The IMF predicted global growth would come in at 3.5% in 2017 and 3.6% in 2018, these however are still below pre-crisis levels, especially for the most advanced economies.

'Our forecasts are right now that it's a mild negative, because we have a favourably optimistic view of how the negotiations will go.

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