Worldwide growth is at six-year low, IMF warns

In a gloomy assessment of the immediate prospects for world business and trade, it cut its forecasts for world growth for the second time this year to only 3.1 per cent, reports The Times. It also warned that “downside risks have risen”, on the back of problems in China and other developing nations and the impact of commodity price falls on resource-rich economies.

Growth in Germany, Europe’s traditional powerhouse economy, also would be weaker than expected, it said.

Brazil and Russia are forecast to shrink this year and next, dragging down emerging market growth for a fifth consecutive year and confirming fears that the global economy is close to stall speed, which economists estimate to be below 3 per cent.

While emerging markets struggle, the IMF said that advanced countries would enjoy their strongest year since 2010. Britain is forecast to expand by 2.5 per cent this year, revised from 2.4 per cent since July, and unchanged next year at 2.2 per cent. The United States will just beat the UK, with 2.6 per cent growth in 2015.

“The good news for the UK comes against a backdrop of weaker global growth. That’s why we must continue working through our long-term plan to build a resilient economy,” a Treasury spokesman said.

The slowdown in the global outlook comes as countries continue to fight off the hangover from the financial crisis. Central banks have printed €7 trillion in quantitative easing and interest rates are near zero.

Maurice Obstfeld, the IMF’s chief economist, said: “Six years after the world economy emerged from its broadest and deepest postwar recession, a return to robust and synchronised global expansion remains elusive. Downside risks to the world economy appear more pronounced than they did just a few months ago.”

Although the IMF left its growth forecasts for China unchanged at 6.8 per cent this year and 6.3 per cent in 2016, below Beijing’s 7 per cent target, it warned that the country’s transition from investment to consumption-led growth would be tricky.

Weak oil prices and capital flight from emerging markets ahead of any US interest rate rise also posed a threat by potentially weakening economies further. The IMF urged China to press ahead with market-based reforms to open up its economy and release the dollar peg to float the yuan.

The IMF downgraded global growth to 3.1 per cent this year, from its 3.3 per cent estimate in July and 3.5 per cent in April. Growth is expected to rebound to 3.6 per cent in 2016. To fend off a worse slump, governments were told to consider borrowing to spend on much-needed infrastructure.

“The case for infrastructure investment seems compelling at a time of very low long-term real interest rates,” Mr Obstfeld said. The stance puts him at odds with George Osborne, who wants to eliminate the UK’s deficit first.

The IMF also said in its World Economic Outlook that it expected the US to start raising rates this year and for Britain to follow in 2016.

The fund predicted that oil prices would remain low, at $55 a barrel into 2017, helping to sustain growth in advanced nations but hitting emerging market oil producers.