IMF could further cut 2016 global growth outlook

04 September 2016

Washington-based fund says weaker demand dims economic prospects

International Monetary Fund (IMF) would likely cut its 2016 global growth forecast again as weaker demand dims economic outlook, according to its managing director Christine Lagarde.

The Washington-based IMF is due to revise its World Economic Outlook forecasts in early October ahead of its annual meetings. Another cut would be the sixth straight growth markdown in about 18 months.

The leader of the G20 countries should do a lot more to increase demand, fight inequality and build the case for trade and globalization, she told new agency Reuters in an interview.

Lagarde described the overall outlook as “slightly declining growth, fragile, weak and certainly not fueled by trade,” despite the fact that some of the major threats to the global economy have yet to materialise, such as recession sparked by Britain’s vote to leave the European Union or a possible collapse in Chinese growth.

“You could argue that Brexit is not really delivering the massive crisis that we had expected, you could argue that the Chinese transition is proceeding reasonably well, and you could argue that low commodity prices have gone up a little bit,” Lagarde said. “So this is on the surface.”

However, a deeper look at the economic growth prospects, growth potential and at the productivity levels and “we are not getting very good signals, and we will probably be revising down our forecast for growth in 2016,” she added.

Citing global uncertainty over the June 23 Brexit vote, the IMF in July cut global GDP growth estimates to 3.1 per cent for 2016 and 3.4 percent for 2017 - down about a tenth of a point for each year.

The full economic impact of the Brexit crisis will probably not be fully known until 2017, when more will become apparent about the shape of the future UK-EU relationship, Lagarde said. But she noted that the UK’s wealth has already been eroded by a 15 per cent decline in the pound’s value, and that UK consumer and business confidence data was weak.

Lagarde said she will tell G20 leaders on Sunday and Monday in Hangzhou, China that further reductions in growth potential and more obstacles to the free movement of goods, services, capital and people would hurt all of them.

Egypt loan

Lagarde would be spending the next several days speaking with officials in a number of countries to persuade them to contribute to about $5bn-$6bn in bilateral financing to support Egypt. The funds are needed to allow a $12bn IMF loan programme to be approved by the fund’s board.

“The fact that Egypt has now reached an agreement with the IMF is an indication that they are taking their economic restructuring, their economic objectives seriously, and that should encourage either friendly neighbouring countries or other bilateral partners to actually participate in the funding,” she said.

While this is likely to include Middle Eastern and Gulf states that have historically supported Egypt, it also may include other countries that “are willing to chip in” to help Egypt reach its considerable economic potential, the news report added.

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