IMF Warns That Global Economic Recovery May Not Last

Despite a pickup in activity in all western countries except the UK, the global economy’s recent recovery may not last, the International Monetary Fund has said.

By the booming markets and policymakers needed to guard against complacency, there was a risk that governments could be lulled into a false sense of security, the IMF said in its World Economic Outlook (WEO) while marking the 10th anniversary of the onset of the financial crisis.

A cliff-edge Brexit, political turmoil in Catalonia, rapid credit growth in China and high asset prices, were cited as risks to an improving global outlook by Maurice Obstfeld, the IMF’s economic counsellor.

“We very much hope these negotiations can be constructive and minimise the costs to both sides”, Obstfeld said about the Brexit talks. “That is in everybody’s interest. A cliff-edge Brexit without any formal arrangements would lead to a lot of uncertainty.”

As a result of the consumer-led slowdown in activity in the first half of the year, the UK’s growth forecast has been cut by 0.3 points to 1.7% since April.

They expected growth to pick up from 0.3% to 0.4% in the third quarter of 2017, said they expected growth to pick up from 0.3% to 0.4% in the third quarter of 2017 and there has been no change in the outlook since the WEO was updated in July.

The IMF adopted a more cautious note in the WEO after warning strongly about the risks of a Brexit-induced recession in the run-up to the EU referendum in June 2016.

“The medium-term growth outlook [for the UK] is highly uncertain and will depend in part on the new economic relationship with the EU and the extent of the increase in barriers to trade, migration and cross-border financial activity,” it said.

Increase from 3.2% in 2016 to 3.6% this year and 3.7% in 2018 would be the growth in the global output on the overall, the IMF said.

Compared to 18 months ago, when there was the prospect of stalling growth and financial turbulence, the state of the world economy was markedly different, Obstfeld said.

“The picture now is very different, with accelerating growth in Europe, Japan, China and the United States,” he said, noting that financial markets did not expect higher interest rates in the US or the phasing out of stimulus by the European Central Bank to cause trouble.

“These positive developments give good cause for greater confidence, but neither policymakers nor markets should be lulled into complacency,” Obstfeld said.

“A closer look suggests that the global recovery may not be sustainable. Not all countries are participating, inflation often remains below target, with weak wage growth, and the medium-term outlook still disappoints in many parts of the world.

“The recovery is also vulnerable to serious risks. Financial markets that ignore these risks are susceptible to disruptive repricing and are sending a misleading message to policymakers.

“Policymakers, in turn, need to maintain a longer-term vision and seize the current opportunity to implement the structural and fiscal reforms needed for greater resilience, productivity and investment.”

(Adapted from Bloomberg)


Categories: Economy & Finance, Uncategorized

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