The International Monetary Fund (IMF) announced on Tuesday its new outlook on world’s economy reducing the figure to a 3.2 percent, a 0.2 percentage less than the projection made by the fund in January 2016.
The announcement was made during this year’s semi-annual IMF and World Bank meetings that took places in Washington DC. These meetings work as a discussion group for leaders around the globe to debate global economy.
According to the statements made by IMF’s Chief Economist Maurice Obstfeld, the world economy is facing an increasing risk of a deterioration in its performance, assuring a decline in its growth rate.
According to statements made by the IMF, the fund was forced to downgrade the previous forecast for the global economy in 2016 to 3.2%. The downgrade is justified by major macroeconomic realignments that are currently affecting the prospects of countries and regions of the world.
China’s slowdown and rebalancing was a subject in the announcement made by the IMF since the country’s weak commodity prices for oil are showing as deeper tolls in emerging markets.
Richer countries were also a part of the statement made, in which the fund assures they are still struggling to escape legacies of the financial crisis. Also, a slowdown in investment and trade has affected the outlook.
The previously mentioned factors plus noneconomic factors such as political tensions and political discord are the reasons why the fund has showed substantial uncertainty.
This new outlook of the world’s economy puts the rate into a higher 0.1 percentage than last year’s outlook. Showing the drastic outlook that world’s economy is facing.
“Consecutive downgrades of future economic prospects carry the risk of a world economy that reaches stalling speed and falls into widespread secular stagnation,” said Chief Economist Maurice Obstfeld in the report.
The Worries
The international Monetary Fund announced that the percentage presented is a big risk for stifle investments, smother wage growth, curb employment and governments in unsustainable levels.
The risk the percentage represents could lead to crisis and recession, but the IMF is still evaluating the outcomes.
“We definitely face the risk of going into doldrums that could be politically perilous,” said Obstfeld in the meeting
Along the political factors mentioned by the IMF figures the recession crisis that both Russia and Brazil are currently living. This crisis could provide deeper political problems, also, the low commodity prices that oil exporters are facing could lead the global economy into a downside.
Outlooks on countries and developing economies
The IMF outlook for China in 2016 was upgraded from 6.3 percent to 6.5 percent since the country compensated for the downfall in the manufacturing business. Although the deceleration of the country is still an impact to trade partners of the world.
Advice to stabilize the numbers
According to the report published by the fund, it is necessary for world’s political leaders to improve their economic management. Labor market reforms and employment raise could help in a medium term the situation.
But the main factor relies on complementary macroeconomic policies, that will help to maximize short-term payoff.
Other advice made by the IMF include:
- Reduction in labor tax wedges
- Increases in public spending on active labor market policies
Source: International Monetary Fund