The global economy will grow at 3.2 per cent in 2016 and 3.5 per cent in 2017, the IMF forecast today in a downward revision of its previous estimates and sought an immediate and proactive response to the diminished outlook.
In its latest World Economic Outlook (WEO) report, the International Monetary Fund noted that the global recovery continues but at an ever slowing and increasingly fragile pace.
"Global growth continues, but at an increasingly disappointing pace that leaves the world economy more exposed to negative risks. Growth has been too slow for too long," Maurice Obstfeld, IMF Economic Counsellor, told reporters at a news conference here while releasing the latest WEO report.
"The new World Economic Outlook anticipates a slight acceleration in growth this year, from 3.1 to 3.2 per cent, followed by 3.5 per cent growth in 2017. Our projections, however, continue to be progressively less optimistic over time," Obstfeld said.
In January, the IMF forecast world output to grow at 3.4 per cent this year and 3.6 in 2017.
With its downside possibilities, the current diminished outlook calls for an immediate, proactive response, Obstfeld said.
"To repeat: there is no longer much room for error. But by clearly recognising the risks they jointly face and acting together to prepare for them, national policymakers can bolster confidence, support growth and guard more effectively against the risk of a derailed recovery," he said.
As this latest World Economic Outlook explains, a range of well-sequenced structural reforms can boost potential output, especially if accompanied by complementary fiscal support, Obstfeld said.
Pro-competitive product-market reforms in particular, such as those implemented with considerable success in Canada, the Netherlands and Spain two decades ago and in Italy in the 2000s, can be expansionary in the near term, he added.
Finally, further financial sector strengthening, as detailed in the Global Financial Stability Report, is essential to create a context in which monetary, fiscal, and structural policies can be more effective, Obstfeld said.
"But policymakers should not ignore the need to
prepare for possible adverse outcomes," Obstfeld said, adding that they should identify mutually reinforcing fiscal and structural policy packages to deploy collectively in the future in case downside risks materialise.
"In addition, continuing international cooperation to improve both the functioning of the international monetary system and the stability of international finance are vital for global economic resilience. That work has progressed considerably since the global financial crisis, but there is more to be done," he said.
The report said China, now the world's largest economy on a purchasing-power-parity basis, is navigating a momentous but complex transition toward more sustainable growth based on consumption and services.
Ultimately, that process will benefit both China and the world, it said.
"Given China's important role in global trade, however, bumps along the way could have substantial spillover effects, especially on emerging market and developing economies," the report added.
