Latest World Economic Outlook report cuts growth by 0.2% in 2016 and 2017 and calls on states to step up public investment or risk derailing recovery

The International Monetary Fund has added to concerns about the health of the global economy by cutting its growth forecasts for the next two years and warning that recovery from the financial crisis could be derailed altogether if key challenges are mishandled.

The Washington-based body said world output would be 0.2 points lower in 2016 and 2017 compared with forecasts made just three months ago – and that the risks to its predictions were to the downside.



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In an update to its World Economic Outlook, the IMF said growth was put at 3.4% this year and 3.6% in 2017. It said central banks should continue to boost growth and that finance ministries should bolster investment spending where possible. It also warned that a “tide of refugees” was putting the EU under strain and that action was needed to ensure that migrants could find jobs.

The IMF said: “Risks to the global outlook remain tilted to the downside and relate to ongoing adjustments in the global economy: a generalised slowdown in emerging market economies, China’s rebalancing, lower commodity prices, and the gradual exit from extraordinarily accommodative monetary conditions in the United States. If these key challenges are not successfully managed, global growth could be derailed.”

It added that the downward revisions largely reflected a more pessimistic view of the prospects for some countries in the emerging world since October. Brazil’s recession was proving to be deeper and more protracted than previously estimated, while the forecasts for Russian and Saudi Arabian growth have also been cut.

Brazil, Russia and Saudi Arabia have been badly affected by the falling oil price, which has crashed further since the IMF updated the WEO. The forecasts assume an oil price of almost $42 a barrel in 2016, substantially higher than Monday’s level of about $28.

The IMF also shaved 0.2 points off its growth estimates for the US in 2016 and 2017, noting that the economy was seen as marking time rather than gaining momentum. Output in the world’s biggest economy is expected to expand by 2.5%, rising to 2.6% in both of the following two years.

European growth is expected to be 1.7% in 2016, an upward revision of 0.1 percentage points on October, with no change to the 1.7% pencilled in for 2017. The IMF has left its forecasts for the UK – of 2.2% in 2016 and 2017 – unchanged.

The Fund has also retained its October forecasts for the Chinese economy, which it expects to slow from growth of 6.9% in 2015 to 6.3% in 2016 and 6% in 2017.

“With the projected pickup in growth being once again weaker than previously expected and the balance of risks remaining tilted to the downside, raising actual and potential output through a mix of demand support and structural reforms is even more urgent,” the IMF said.



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“In advanced economies, where inflation rates are still well below central banks’ targets, accommodative monetary policy remains essential. Where conditions allow, near-term fiscal policy should be more supportive of the recovery, especially through investments that would augment future productive capital.” It added that where governments did need to reduce big budget deficits, action should be “growth friendly and equitable”.

The Fund said inflation had moved sideways in most countries, but noted that the renewed declines in commodity prices and a glut of cheap manufactured goods meant further downward pressure on the cost of living was now in prospect.

“In Europe, where the tide of refugees is presenting major challenges to the absorptive capacity of European Union labour markets and testing political systems, policy actions to support the integration of migrants into the labour force are critical to allay concerns about social exclusion and long-term fiscal costs, and unlock the potential long-term economic benefits of the refugee inflow.”

