London - Turmoil in developing countries will drive global economic growth this year down to its lowest rate since the financial crisis, the International Monetary Fund predicted on Tuesday.
In its latest World Economic Output report, the IMF projects global GDP growth this year of just 3.1 per cent, down from the 3.3 percent it was forecasting in July. That would represent the weakest pace of economic expansion seen since 2009, when the world was still reeling from multiple bank failures and a collapse in global trade.
“We project that in the near term, growth will remain moderate and uneven, with higher downside risks than were apparent at our July update,” Maurice Obstfeld, the IMF's new chief economist, said. “The 'holy grail' of robust and synchronised global expansion remains elusive.”
Obstfeld added that the collapse in world commodity prices was having its most serious impact on exporters such as Brazil and Russia, and that emerging and developing economies looked set to experience a fifth straight year of falling GDP growth.
But the chief economist, who took over from Olivier Blanchard last month, also suggested that political instability and a private sector debt overhang, as well as weak commodity prices, were depressing growth in some of these countries.
The IMF is forecasting that the Russian economy will contract by 3.8 percent this year and that Brazil will shrink by 3 percent.
A slowdown in demand in China is one of the drivers of lower commodity prices. But despite widespread concerns over the Chinese economy, the IMF yesterday kept its growth forecast for the country unchanged from July at 6.8 per cent for 2015.
The global economy grew at an average rate of 4.5 per cent in the seven years to 2007. GDP growth collapsed to zero in 2009 before rebounding to 5.4 percent in 2010 as governments and central banks stimulated their economies. The IMF expects world GDP growth to increase to 3.6 percent in 2016, down from its previous estimate of 3.8 percent.
Obstfeld said developing countries “need to be ready” for the impact of an increase in interest rates from the US Federal Reserve, even though the IMF has urged the Fed to hold off for longer.
Regarding developed countries, he said that “the case for infrastructure investment seems compelling at a time of very low long-term real interest rates”.
THE INDEPENDENT