IMF slashes 2015-2016 world growth forecast

WASHINGTON, United States (AFP) – The International Monetary Fund on Tuesday sharply cut its 2015-2016 world growth forecast of only six months ago, saying lower oil prices did not offset pervasive weaknesses around the globe.

The IMF said poorer prospects in China, Russia, the euro area and Japan will hold world GDP growth to just 3.5 per cent this year and 3.7 per cent in 2016.

The forecasts were lower than the 3.8 per cent and 4 per cent growth for 2015 and 2016 respectively given in the previous World Economic Outlook in October. The cut underscored the steady deterioration of the economic picture for many countries, due to sluggish investment, slowing trade and falling commodity prices.

While the United States will remain the one bright spot among major economies, Europe will continue to struggle with disinflation, the IMF said.

Meanwhile, China's growth – which Beijing said Tuesday, had slowed to 7.4 per cent in 2014, its weakest for 24 years – will decelerate further, hit by poor export growth and a real estate slump, the organization said.

The IMF forecast that the United States, the world's largest economy, will expand by 3.6 per cent this year, up a half-per centage point from the previous outlook.

But the economy of China, the global number two, is expected to grow 6.8 per cent this year, the IMF said – 0.3 per cent slower than previously expected – and 6.3 per cent in 2016.

The last time Chinese growth fell below seven per cent was in the crunch of 1990, when it slowed to 3.8 per cent.

"Lower growth in China will have an adverse effect on its trade partners, in particular on the rest of Asia," Oliver Blanchard, the IMF's chief economist, said at a briefing in Beijing, as the organisation also downgraded growth prospects for other Asian countries.

For the eurozone and Japan, it said, "stagnation and low inflation are still concerns" requiring sustained monetary easing and other measures to keep interest rates from rising.

In the eurozone, where the region's central bank is expected to decide to boost stimulus this week, low oil prices and the depreciated euro are a help to growth. But it will also struggle with low investment levels and poorer demand for the region's exports from emerging economies.

The region is expected to expand 1.2 per cent in 2015, and 1.4 per cent next year.

Japan's stimulus has not worked as well as expected, and the IMF expects it to expand just 0.6 per cent this year, picking up to a still-sluggish 0.8 per cent in 2016.

"At this stage potential medium-term growth in Japan is very very low," Blanchard said.

"So far both private domestic and foreign demand have disappointed."

Russia, already pressed by sanctions over its support for secessionists in Ukraine, is particularly hurt by lower oil prices. The IMF now says the Russian economy will contract 3.0 per cent this year and 1.0 per cent in 2016. In October the IMF was still predicting slight growth for the country.

The Latin America and Caribbean region is expected to see a growth rate of 1.3 per cent in 2015 and 2.3 per cent in 2016