Global growth will step up a gear over the next two years according to the International Monetary Fund, following the collapse in oil prices and the easing of austerity programmes in developed countries.
But the Washington-based organisation warned that the failure to secure a more sustainable recovery following the 2008 financial crash had left the outlook for global growth vulnerable to further economic shocks.
In its much-anticipated six monthly world economic outlook, the IMF forecast global growth of 3.5% in 2015 – unchanged from its last update in January – and 3.8% in 2016, 0.1% stronger than it had previously expected.
However, it warned that the “complex forces” that affected global activity in 2014 – including wild swings in exchange rates and collapsing commodity prices – were still shaping economic events.
Longer-term issues have also depressed the “productive capacity” of many countries, the IMF said, including large debt mountains and ageing populations in Europe, Japan and the US.
Earlier on Tuesday, the World Trade Organisation (WTO) cut its forecasts for global trade growth this year to 3.3%, down from 4%. It said growth in 2014 fell below its forecast of 3.1%, coming out at 2.8%.
“We expect trade to continue its slow recovery but with economic growth still fragile and continued geopolitical tensions, this trend could easily be undermined,” said WTO director-general Roberto Azevêdo.
The predictions come only a week after IMF boss Christine Lagarde said that the global recovery could be described as mediocre at best. She said the threat of a “new mediocrity” was unlikely to go away without a concerted effort by governments to tackle longstanding issues that placed a drag on growth.
The dollar has soared on world exchanges over the last year while the yen and euro have slumped. Sterling has risen against most currencies, but declined sharply this year against the dollar.
In the latest report, the IMF said growth would prove to be uneven through this year and next as poorer developing nations slowed and more developed nations accelerated.
It said: “Relative to last year, the outlook for advanced economies is improving, while growth in emerging market and developing economies is projected to be lower, primarily reflecting weaker prospects for some large emerging market economies and oil-exporting countries.”
It identified several countries as a cause for concern, especially should the US increase interest rates and the dollar rise to even higher levels.
In the report, it forecast that Russia will slide into a two-year period of recession following the collapse in oil and the advent of wildly fluctuating markets that have sent commodity prices tumbling in recent months. Iron prices have collapsed along with the spot prices for many other metals.
A drought in Brazil has seriously damaged South America’s largest economy, sending it into recession this year before a mild and still-fragile recovery in 2016, the IMF said. Meanwhile, the tiger economies of south-east Asia, which have grown quickly through trade with China, are expected to suffer from the knock-on effects of slower growth in the world’s second largest economy. Developed economies,
which import oil and gas and were prviously hampered by high prices, are expected accelerate as businesses and consumer benefit from lower energy costs.
The US is one of the countries likely to benefit most from low energy costs after becoming almost self-sufficient in recent years. It is expected to maintain its role as an engine of consumer demand for the rest of the world’s manufactured goods. UK growth is also forecast to remain strong, but will buck the trend for developed countries to accelerate between this year and next with a fall in growth from 2.7%
in 2015 to 2.3% next year.
Part of the problem facing Britain and other countries that failed to build enough homes was a dysfunctional housing market that failed to meet demand. The IMF said: “For Sweden, Switzerland, and the United Kingdom, containing financial stability risks from housing and mortgage markets remains important.”
This article was written by Phillip Inman in Washington, for theguardian.com on Tuesday 14th April 2015 14.00 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010