Canada’s forecast takes hit as IMF cuts global growth outlook again
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By: David Parkinson
Source : Business News Network
The International Monetary Fund has again cut its forecast for both global and Canadian economic growth, as the plunge in oil prices widens the rifts in the world economy.
The IMF’s World Economic Outlook Update (WEO), unveiled in Beijing on Tuesday morning local time, forecast global growth of 3.5 percent in 2015 – slightly higher than last year’s modest 3.3-percent expansion, but down from 3.8 per cent in the IMF’s previous outlook in October. It reduced its 2016 forecast by the same amount, to 3.7 per cent from October’s 4 per cent.
This is the third successive quarterly report in which the IMF trimmed its global growth forecast for the current year.
The international financial body cut its forecast for every major economy except one: The United States. It raised its 2015 forecast for U.S. growth to 3.6 per cent from its October forecast of 3.1 percent and up strongly from 2014’s 2.4 percent. It raised its 2016 U.S. forecast to 3.3 percent from 3.0 percent.
The IMF’s growth forecast for Canada is now 2.3 percent in 2015 and 2.1 percent in 2016, down from its previous call of 2.4 percent in both years. Canada’s 2014 growth was estimated at 2.4 percent.
“Oil exporters, for which oil receipts typically contribute to a sizable share of fiscal revenues, are experiencing larger shocks in proportion to their economies,” the IMF said.
The report said the dramatic drop in oil prices should be a net positive for the world economy. However, exporters of oil and other commodities will be slowed by the sharp price declines – including many emerging-market regions that had been relied upon for strong contributions to global growth.
“Developments since the release of the October WEO have conflicting implications for the growth forecasts. On the upside, the decline in oil prices driven by supply factors … will boost global growth over the next two years or so by lifting purchasing power and private demand in oil importers,” the report said. “However, the boost from lower oil prices is expected to be more than offset by an adjustment to lower medium-term growth in most major economies other than the United States.”
“Our forecasts reflect the increasing divergence between the United States on one hand and the euro area and Japan on the other,” Olivier Blanchard, IMF economic counsellor and director of research, said in remarks prepared for a press conference in conjunction with the report’s release. The IMF noted that this divergence is widening interest rate and currency spreads (in particular, driving up the U.S. dollar and depressing the euro and Japanese yen), further complicating the economic landscape for many countries.
“At the country level, the cross currents make for a complicated picture,” he said.
The IMF projected euro zone growth of just 1.2 percent in 2015, down from 1.4 percent in the October forecast, although up from 2014’s 0.8 percent. For 2016, the IMF forecast growth at 1.4 percent, down from 1.7 percent in the earlier projection.
The agency predicted that Japan, which slipped into recession in the 2014 third quarter, would see growth of just 0.6 percent in 2015, down from its earlier forecast of 0.8 percent. It trimmed its 2016 forecast slightly, to 0.8 percent.
The IMF also warned of slower growth in China, where the government is seeking to reduce the economy’s credit exposure and reorient toward consumer growth. The agency now sees China’s growth slowing to 6.8 percent this year (down from the previously forecast 7.1 percent) and 6.3 percent next year (down from 6.8 percent), compared with 7.4 percent in 2014.
Blanchard did allow that the net benefit of lower oil prices could prove a stronger global economic stimulant than the IMF is currently anticipating.
“This decline may turn out to be a stronger ‘shot in the arm’ than is implicit in our forecasts,” he said. “Our forecasts may turn out to have been a bit too pessimistic. I very much hope so.”
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China takes Top Spot in Latest IMF Report
It’s official – the US economy is now #2 in the world. If it isn’t obvious already, China took the lead this year.
The International Monetary Fund released it’s latest economic report.
The IMF oversees the international monetary system and monitors the financial and economic policies of its members. It keeps track of economic developments on a national, regional, and global basis, and reports annually.
In terms of real purchasing power, China now represents 16.5{92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce} of the global economy, whereas the US represents 16.3{92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce}. To be fair the is a difference of 0.2{92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce}, however this shows the growing economies in Asia. India comes in third at 7.2{92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce}.
The last time that the US slid from the first spot was when Ulysses S. Grant was president! In the short term this won’t change much, but the long term implications. Economic power has always been a strong indication of political and military power. Britain, Spain, France, Rome… they all were once on top of the world – but when their economies declined, so did their power and influence.
Will history repeat itself? Only time will tell.
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