BREAKING NEWS, Business
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The International Monetary Fund says the world economy is vulnerable to recession as growth weakens due to political and financial crisis amidst fears of rising protectionism should Britain quit the European Union
THE International Monetary Fund has warned that the global economy would face severe damage of weak growth and rising protectionism, if Britain quit the European Union. The Fund cut its global forecast for the third straight quarter, saying economic activity has been too slow for too long, and stressed the need for immediate action by the world’s economic powers to shore up growth.
It said intensifying financial and political risks around the world, from volatile financial markets to the Syria conflict to global warming, had left the economy increasingly fragile and vulnerable to recession. The IMF on Tuesday, April 12, raised concerns over fraying unity in the European Union under pressure from the migration crisis and the Brexit possibility.
It pointed to the contractions in large emerging market economies, most notably Brazil, where the economic downturn has been accompanied by deep political crisis that has President Dilma Rousseff facing impeachment.
Seeing a broad fall in trade and investment, the IMF cut its forecast for world growth this year to a sluggish 3.2 percent, 0.2 percentage points down from its January outlook and down from the 3.8 percent pace expected last July. That reflects a glummer view of growth in both developed and emerging economies, with the forecasts for Japan and oil-dependent Russia and Nigeria all sharply lowered. Growth expectations for most leading economies were pared back by 0.2 percentage points.
The outlook for the United States hit by the impact of the strong dollar was trimmed to 2.4 percent from 2.6 percent in January. Only the pictures in China and developing Eastern Europe were better. But at a slightly upgraded pace of 6.5 percent growth, China was still on track for a significant slowdown from last year.
The growth downgrade was expected but the tone of the IMF message was more than in recent months. It came as an increasing number of countries are approaching the IMF and World Bank for financial support. Recent Angola because of its finances devastated by the crash in oil prices, asked the IMF for a three-year bailout programme. And the World Bank said requests for loan support had reached levels seen only during financial crises.
Maurice Obstfeld, IMF chief economist, said there was a risk of a full stall in global growth without efforts to boost investment and demand. “The weaker is growth, the greater the chance that the preceding risks, if some materialise, pulls the world economy below stalling speed. Lower growth means less room for error.”
The IMF singled out the violent swings in global financial markets as a particular threat to growth this year, impairing confidence and demand. “Since last summer, we have seen two distinct rounds of global financial turbulence,” Obstfeld said.
The result, he said, is capital flight from riskier assets and economies, higher borrowing costs for developing countries, and continued weakness in commodity prices. The second factor with global consequences, the Fund said, is the violent instability in Syria and elsewhere that has driven millions of refugees into surrounding states and Europe. Beyond the financial and social costs from that is a rising tide of inward-looking nationalism which jeopardises the long push for greater global economic progress.
“Across Europe, the political consensus that once propelled the European project is fraying,” the IMF said, warning “a backlash against cross-border economic integration threatens to halt or even reverse the post war trend of ever more open trade. One sign of that is the looming Brexit referendum. If British voters opt to leave the EU, it could do severe regional and global damage by disrupting established trading relationships.”
David Cameron, British prime minister, who wants his country to remain in the European Union, agreed with that assessment. He said the IMF is right, leaving the EU would pose major risks for the UK economy. “We are stronger, safer and better off in the European Union,” he said in a tweet. — Yahoo News
— Apr 25, 2016 @ 01:00 GMT
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