The International Monetary Fund (IMF) cut its global growth forecast for the fourth time in the past years. This was done following China’s slowdown, persistently low oil prices and chronic weakness in advanced economies.
The International Monetary Fund (IMF) is the central institution embodying the international monetary system and promotes balanced expansion of world trade, reduced trade restrictions, stable exchange rates, minimal trade imbalances, avoidance of currency devaluations, and the correction of balance-of-payment problems.
IMF forecast that the global economy would grow at 3.2 per cent in 2016 compared to its previous forecast of 3.4 per cent in January. IMF is going to unite a meeting with World Bank, which will be held in Washington.
IMF, in its latest World Economic Forum Outlook, declared that the weaker growth could be the reason for the global economy to become weak and unable to tackle the currency depreciation and will also worsen the geopolitical conflicts. With the declaration IMF also gave a warning of wide spread of stagnation risk and said that a sharper slowdown in China than currently projected could have strong international spillovers through trade, commodity prices, and confidence, and lead to a more generalized slowdown in the global economy, especially if it further curtailed expectations of future income.
The global policymakers attending IMF and World Bank meetings, were called to talk about the coordinated actions to be taken so that the demand can be boosted with structural economic reforms, fiscal stimulus.
IMF chief economist Maurice Obstfeld said that lower growth means less room for error and persistent slow growth has scarring effects that reduce potential output and with it, demand and investment. The new forecasts follow previous growth markdowns in July, October and January.
According to Obstfeld global growth could easily weaken from the latest IMF forecasts which could reinforce a deflationary spiral of weak growth that erodes future output potential. He said this phenomenon is known in some economic circles as “secular stagnation”. He also stated that persistently lower growth could reinforce a sense of economic inequality and encourage nationalistic, protectionist policies, particularly in the euro area, which could also reduce potential.
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