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IMF paints gloomy picture of global economy


IMF paints gloomy picture of global economy



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The IMF is warning the political mood around the world is undermining growth, which it sees remaining weak.

It cites what is happening with the US presidential election, Britain’s vote to leave the European Union and growing protectionism.

Its latest global growth forecast is unchanged for the first time in five quarters at 3.1 percent for 2016 and 3.4 percent for 2017. Previously it had lowered the forecasts.

There is a slight improvement for the eurozone at +1.7 percent in 2016 (previously it was +1.6 percent) and +1.5 percent in 2017 (previously it was +1.4 percent).

But there was a drop in US economic expansion at +1.6 percent in 2016 (down 0.6 from the 2.2 percent forecast in July) and +2.2 percent in 2017 (the previous forecast was +2.5%).

The IMF warned further economic stagnation will fuel more populist sentiment against trade and immigration and that would stifle activity, productivity and innovation.

Maurice Obstfeld, the IMF’s chief economist, said: “Growth has been too low for too long and in many countries its benefits have reached too few with political repercussions that are likely to depress global growth further.”

He added: “Brexit is only one example of this tendency.”

For Britain, the IMF notes retail spending has held up better than expected since the vote to leave the European Union.

So it has lifted its forecast slightly for this year by 0.1 percent to 1.8 percent, but has lowered its forecast for next year by 0.2 percent to 1.1 percent growth, reasoning that uncertainty over separation from Europe will mean less investment.

The pound dropped further on Tuesday – hitting a 31-year low against the dollar – with investors concerned the British government seems to want to focus more on controlling immigration than on trade access to the European single market.

Michael Hewson, Chief Market Analyst at CMC Markets said: “UK Prime Minister Theresa May basically told the markets that she intended to trigger article 50 of the Lisbon treaty by the end of Q1 2017 and that wasn’t really a surprise. I think what was the surprise was the tone of her remarks. The tone of her remarks suggested she really wanted to take control of immigration and that has led markets to join the dots and essentially speculate on the fact that she could be looking for what is termed a hard Brexit, i.e. a pull out from the single market. And I think there’s a perception that could cause a significant amount of disruption.”


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