The International Monetary Fund kept its global growth forecast unchanged on expectations the euro zone and Japanese growth would accelerate despite cutting the economic growth outlook for the U.S. and U.K.
Unchanged from its April outlook, the IMF forecast global economic growth of 3.5 percent for 2017 and 3.6 percent for 2018, in the July update of its World Economic Outlook.
Citing both weak growth in the first quarter of this year as well as the assumption that fiscal policy will be less expansionary than previously expected, the bank had earlier cut its U.S. growth projection to 2.1 percent from 2.3 percent for 2017 and to 2.1 percent from 2.5 percent for 2018.
While leaving its 2018 forecast at 1.5 percent, its forecast for U.K. growth for this year was cut to 1.7 percent from 2.0 percent, due to a weaker-than-expected first quarter.
The IMF said that increased forecasts for many euro area countries, including Germany, France, Italy and Spain, where first quarter growth largely beat expectations, were expected to offset slowdowns in the U.S. and U.K.
“This, together with positive growth revisions for the last quarter of 2016 and high-frequency indicators for the second quarter of 2017, indicate stronger momentum in domestic demand than previously anticipated,” the IMF said in its release.
Euro-area growth forecast was raised to 1.9 percent from 1.7 percent for 2017. It increased its forecast to 1.7 percent from 1.6 percent for 2018.
While leaving its 2018 forecast unchanged at 0.6 percent, up from 1.2 percent forecast in April, the IMF tweaked its Japan forecast for 2017 to growth of 1.3 percent.
Additionally, citing a stronger-than-expected first quarter, the IMF raised its China growth forecast for 2017 by 0.1 percentage point to 6.7 percent. And on expectations authorities will maintain high public investment to meet their target of doubling 2010 real gross domestic product (GDP) by 2020, the IMF raised its China growth forecast by 0.2 percentage point to 6.4 percent for 2018.
The IMF said that in the medium term, risks were “skewed to the downside” and it saw global risks as “broadly balanced” for the short term.
“Protracted policy uncertainty or other shocks could trigger a correction in rich market valuations, especially for equities, and an increase in volatility from current very low levels,” the IMF said. “In turn, this could dent spending and confidence more generally, especially in countries with high financial vulnerabilities.”
It wasn’t clear when any U.S. reforms would come through, said Maurice Obstfeld, economic counselor and director of research at the IMF.
“We had initially thought back in January that they would come online pretty quickly. Now, that has not happened, so we’ve changed our growth forecasts,” he said. “There is the potential to increase growth through, for example, tax reform, but when we see it we’ll have a better idea of when the effects might be felt.”
And as lower prices would exacerbate economic strains, the organization also expressed concern about commodity-exporting nations. It advised those nations to continue adjusting to lower revenues and diversifying their sources of growth and it noted that commodity exporters’ economic growth has been below pre-crisis averages.
“Commodity exporters, as a rule, need to diversify,” Obstfeld said. “The China card, which was so successful in the 2000s and the early part of this decade, is increasingly absent as China rebalances away from very commodity-intensive activities. So clearly the old models are not going to work and governments in those exporters need to be thinking hard about how to broaden their economies.”
(Adapted from CNBC)