Emerging markets face uneven outlook

The IMF while upgraded its outlook for Japan and the Euro-zone, notably cut those for the world’s largest economy the US

The International Monetary Fund (IMF) warning of a low-growth future for the global economy said on October 04, 2016 that protectionist political trends risked “turning back the clock” on free trade. In its new World Economic Outlook (WEO) report, the global crisis lender IMF also sounded an alarm over what it called a “dangerous” credit binge in China. The IMF said populist politics imperiled trade liberalization and economic growth with Britain voting in 2016 to secede from the European Union (EU) and the United States (US) presidential candidates disfavouring open borders. 

The IMF while upgraded its outlook for Japan and the Euro-zone, notably cut those for the world’s largest economy the US. Saying that prospects for richer countries had darkened this year, in part due to the protectionist talk, it also downgraded forecasts both for growth in global trade volume and for advanced economies’ output. The IMF chief economist Maurice Obstfeld said that it is vitally important to defend the prospects for increasing trade integration. Turning back the clock on trade can only deepen and prolong the world economy’s current doldrums. Global Gross Domestic Product (GDP) is expected to grow in 2016 by 3.1 percent before rising to 3.4 percent next year, estimates that are unchanged from July 2016. 
Obstfeld said in remarks accompanying the new forecast that taken as a whole, the world economy has moved sideways. He said that around the world “sub-par growth” was stirring negative economic and political forces. The IMF raised its outlook slightly for emerging and developing economies to 4.2 percent but downgraded it for advanced economies in 2016 by 0.2 percentage points to 1.6 percent. Next year’s (2017) forecasts were unchanged. The IMF said global growth still faces notable uncertainties, such as further economic shocks in China, a continued fall in commodity prices and the sudden imposition of new trade barriers. The report said geopolitical tensions could flare up, adding to the humanitarian crises already afoot in the Middle East and Africa. 
The US suffered the report’s sharpest downward revision of 0.6 percentage points following a lackluster second quarter, with growth now foreseen at 1.6 percent in 2016 – slower than the Euro-zone – and 1.8 percent in 2017. However, Japan was a surprise bright spot with forecasts revised upward. The Japanese economy is now due to grow by 0.5 and 0.6 percent in 2016 and next. Likewise, with output expected to increase by 1.7 percent this year and 1.5 percent in 2017, the Euro-zone got a slight boost. According to the research firm Capital Economics, which said that IMF forecasts would probably be lowered even further over the coming year, the tone of the report was “decidedly gloomy”. For a start, the IMF seems to be too upbeat on the prospects for the Euro-zone.
Obstfeld, in his remarks, pointedly warned of the “gathering political fallout” of a low-growth era in wealthy countries where income distribution has skewed “sharply towards the highest earners”. He said the result in some richer countries has been a political movement that blames globalization for all woes and seeks somehow to wall off the economy from global trends rather than engage cooperatively with foreign nations. While prospects for China were unchanged, with this world’s second largest economy expected to grow a robust 6.6 percent in 2016 and 6.2 percent next year, contractions in Russia and Brazil are also due to end. But the IMF report cited an alarming growth in private sector credit in China, propping up state enterprises to postpone the recording of losses – risking an “eventual disruptive adjustment”. 
Meanwhile, Obstfeld pushed back against assertions that the IMF had been excessively alarmist in warning of the fallout of Britain’s vote to leave the EU. The IMF said earlier in 2016 that the Brexit vote could cause a recession in the UK. But October 04, 2016 forecasts instead revised British growth upwards by 0.1 percentage points for 2016, to 1.8 percent. But it further downgraded the 2017 outlook to 1.1 percent. British markets had reacted more favourably than anticipated but that current circumstances were within the range of possibilities the IMF had initially published, Obstfeld said. He said “We did focus on possible risks and those possible risks were there”. 
The IMF warned on October 04, 2016 though developing nations continue to be the backbone of global growth, but face a series of headwinds including a slowdown in China, weak demand in advanced economies, low commodity prices and political strife. The IMF said the outlook for emerging markets was lopsided, with India a bright spot, but, as they are hit by low demands for raw materials the sub-Saharan Africa enduring either tepid growth or recession. Developing nations that once considered a key driver of global growth have been battered since the financial crisis 2008; as crucial custom from sputtering western economies has dried up, while governments struggle with huge debts. In an update to its WEO the IMF said after the global turmoil unleashed at the start of the year by worries over China’s economy, the emerging economies had enjoyed “a period of relative calm in recent months”. 
Saying developing nations would make up more than three-quarters of projected world growth the IMF also increased its forecast for expansion in 2016 of these nations, to 4.2 percent from 4.1 percent estimated in July 2016. But it said the outlook for these economies is uneven and generally weaker than in the past; while external financing conditions have eased with expectations of lower interest rates in advanced economies, other factors are weighing on activity. These, it said, included the slowdown in China, whose spillovers are magnified by its lower reliance on import- and resource-intensive investment, commodity exporters’ continued adjustment to lower revenues; spillovers from persistently weak demand in advanced economies; and domestic strife, political discord, and geopolitical tensions in several countries. 
China is considered one of the key engines of the global economy. Instead of the massive government investment and cheap exports that have underpinned China’s decades-long rise, it is seeking a recalibration to make consumer spending a key driver for growth. But the transition is proving painful as key indicators continue to come in below par and as growth rates sit at 25-year lows. Its outsize influence on the global economy means the worldwide outlook is heavily dependent on what happens in China. Its weakest annual rate in a quarter of a century the Chinese economy expanded 6.9 percent in 2015. The IMF said it expected growth of 6.6 percent in 2016 – the same as its forecast in July 2016 – slowing to 6.2 percent in 2017. The report said China’s adjustment to a slower growth path and the subdued outlook for commodity prices remain potent forces shaping prospects for many of these economies. After the credit boom of 2002-2012, most tangibly, these two large reconfigurations have burdened the operating environment for emerging market and developing economy businesses, many of which are saddled with high debt. 
By plunging demand from developed nations and overcapacity, global commodity prices have been hammered in recent years. The IMF said the lower prices had boosted India, where growth hit 7.6 percent in 2015 and a number of structural reforms had been implemented. However, it warned, to boost jobs, further measures were needed, while the central bank should continue with its own reform agenda. Reserve Bank of India cut interest rates to a six-year low of 6.25 percent on October 04, 2016. The IMF tipped growth of 7.6 percent in 2016 and next, up from 7.4 percent projected in July 2016. 
The report said the outlook for Brazil, which in August 2016 saw President Dilma Rousseff impeached and removed, and Russia, which is struggling with low oil revenues, has also improved. 
The IMF warned South Africa has also taken a hit as falling income from commodity exports mixes with political uncertainty and weak policymaking. Outside of the so-called BRICS economies – Brazil, Russia, India, China and South Africa – the IMF’s outlook for sub-Saharan Africa was cut to 1.4 percent in 2016 and 2.9 percent in 2017. That is down from 1.6 percent and 3.3 percent forecast in July 2016.  
   
The writer is a retired Professor of Economics

Emerging markets face uneven outlook

The IMF while upgraded its outlook for Japan and the Euro-zone, notably cut those for the worlds largest economy the US

The International Monetary Fund (IMF) warning of a low-growth future for the global economy said on October 04, 2016 that protectionist political trends risked turning back the clock on free trade. In its new World Economic Outlook (WEO) report, the global crisis lender IMF also sounded an alarm over what it called a dangerous credit binge in China. The IMF said populist politics imperiled trade liberalization and economic growth with Britain voting in 2016 to secede from the European Union (EU) and the United States (US) presidential candidates disfavouring open borders. The IMF while upgraded its outlook for Japan and the Euro-zone, notably cut those for the worlds largest economy the US. Saying that prospects for richer countries had darkened this year, in part due to the protectionist talk, it also downgraded forecasts both for growth in global trade volume and for advanced economies output. The IMF chief economist Maurice Obstfeld said that it is vitally important to defend the prospects for increasing trade integration. Turning back the clock on trade can only deepen and prolong the world economys current doldrums. Global Gross Domestic Product (GDP) is expected to grow in 2016 by 3.1 percent before rising to 3.4 percent next year, estimates that are unchanged from July 2016. Obstfeld said in remarks accompanying the new forecast that taken as a whole, the world economy has moved sideways. He said that around the world sub-par growth was stirring negative economic and political forces. The IMF raised its outlook slightly for emerging and developing economies to 4.2 percent but downgraded it for advanced economies in 2016 by 0.2 percentage points to 1.6 percent. Next years (2017) forecasts were unchanged. The IMF said global growth still faces notable uncertainties, such as further economic shocks in China, a continued fall in commodity prices and the sudden imposition of new trade barriers. The report said geopolitical tensions could flare up, adding to the humanitarian crises already afoot in the Middle East and Africa. The US suffered the reports sharpest downward revision of 0.6 percentage points following a lackluster second quarter, with growth now foreseen at 1.6 percent in 2016 slower than the Euro-zone and 1.8 percent in 2017. However, Japan was a surprise bright spot with forecasts revised upward. The Japanese economy is now due to grow by 0.5 and 0.6 percent in 2016 and next. Likewise, with output expected to increase by 1.7 percent this year and 1.5 percent in 2017, the Euro-zone got a slight boost. According to the research firm Capital Economics, which said that IMF forecasts would probably be lowered even further over the coming year, the tone of the report was decidedly gloomy. For a start, the IMF seems to be too upbeat on the prospects for the Euro-zone. Obstfeld, in his remarks, pointedly warned of the gathering political fallout of a low-growth era in wealthy countries where income distribution has skewed sharply towards the highest earners. He said the result in some richer countries has been a political movement that blames globalization for all woes and seeks somehow to wall off the economy from global trends rather than engage cooperatively with foreign nations. While prospects for China were unchanged, with this worlds second largest economy expected to grow a robust 6.6 percent in 2016 and 6.2 percent next year, contractions in Russia and Brazil are also due to end. But the IMF report cited an alarming growth in private sector credit in China, propping up state enterprises to postpone the recording of losses risking an eventual disruptive adjustment. Meanwhile, Obstfeld pushed back against assertions that the IMF had been excessively alarmist in warning of the fallout of Britains vote to leave the EU. The IMF said earlier in 2016 that the Brexit vote could cause a recession in the UK. But October 04, 2016 forecasts instead revised British growth upwards by 0.1 percentage points for 2016, to 1.8 percent. But it further downgraded the 2017 outlook to 1.1 percent. British markets had reacted more favourably than anticipated but that current circumstances were within the range of possibilities the IMF had initially published, Obstfeld said. He said We did focus on possible risks and those possible risks were there. The IMF warned on October 04, 2016 though developing nations continue to be the backbone of global growth, but face a series of headwinds including a slowdown in China, weak demand in advanced economies, low commodity prices and political strife. The IMF said the outlook for emerging markets was lopsided, with India a bright spot, but, as they are hit by low demands for raw materials the sub-Saharan Africa enduring either tepid growth or recession. Developing nations that once considered a key driver of global growth have been battered since the financial crisis 2008; as crucial custom from sputtering western economies has dried up, while governments struggle with huge debts. In an update to its WEO the IMF said after the global turmoil unleashed at the start of the year by worries over Chinas economy, the emerging economies had enjoyed a period of relative calm in recent months. Saying developing nations would make up more than three-quarters of projected world growth the IMF also increased its forecast for expansion in 2016 of these nations, to 4.2 percent from 4.1 percent estimated in July 2016. But it said the outlook for these economies is uneven and generally weaker than in the past; while external financing conditions have eased with expectations of lower interest rates in advanced economies, other factors are weighing on activity. These, it said, included the slowdown in China, whose spillovers are magnified by its lower reliance on import- and resource-intensive investment, commodity exporters continued adjustment to lower revenues; spillovers from persistently weak demand in advanced economies; and domestic strife, political discord, and geopolitical tensions in several countries. China is considered one of the key engines of the global economy. Instead of the massive government investment and cheap exports that have underpinned Chinas decades-long rise, it is seeking a recalibration to make consumer spending a key driver for growth. But the transition is proving painful as key indicators continue to come in below par and as growth rates sit at 25-year lows. Its outsize influence on the global economy means the worldwide outlook is heavily dependent on what happens in China. Its weakest annual rate in a quarter of a century the Chinese economy expanded 6.9 percent in 2015. The IMF said it expected growth of 6.6 percent in 2016 the same as its forecast in July 2016 slowing to 6.2 percent in 2017. The report said Chinas adjustment to a slower growth path and the subdued outlook for commodity prices remain potent forces shaping prospects for many of these economies. After the credit boom of 2002-2012, most tangibly, these two large reconfigurations have burdened the operating environment for emerging market and developing economy businesses, many of which are saddled with high debt. By plunging demand from developed nations and overcapacity, global commodity prices have been hammered in recent years. The IMF said the lower prices had boosted India, where growth hit 7.6 percent in 2015 and a number of structural reforms had been implemented. However, it warned, to boost jobs, further measures were needed, while the central bank should continue with its own reform agenda. Reserve Bank of India cut interest rates to a six-year low of 6.25 percent on October 04, 2016. The IMF tipped growth of 7.6 percent in 2016 and next, up from 7.4 percent projected in July 2016. The report said the outlook for Brazil, which in August 2016 saw President Dilma Rousseff impeached and removed, and Russia, which is struggling with low oil revenues, has also improved. The IMF warned South Africa has also taken a hit as falling income from commodity exports mixes with political uncertainty and weak policymaking. Outside of the so-called BRICS economies Brazil, Russia, India, China and South Africa the IMFs outlook for sub-Saharan Africa was cut to 1.4 percent in 2016 and 2.9 percent in 2017. That is down from 1.6 percent and 3.3 percent forecast in July 2016. The writer is a retired Professorof Economics