​IMF holds its China forecast unchanged, but warns of rising risk from slowing growth

BOFIT Viikkokatsaus / BOFIT Weekly Review 2015/41

In its latest World Economic Outlook (WEO) this week, the IMF slightly lowered its July estimate for growth of the global economy this year and next. The IMF now sees the global economy growing 3.1 % this year and 3.6 % next year. The global economy expanded by 3.4 % last year. The slight deterioration in the growth outlook was mainly due to the slowdown in emerging economies and countries dependent on commodity exports. The expected US rate hike, declining commodity prices, reduced capital imports and the accompanying depreciation pressure on currencies added to uncertainty facing specifically emerging and developing countries that produce commodities. China as a major consumer of energy and commodities plays a significant role in the WEO forecast.

 The IMF expects Chinese economic growth to slow from 7.3 % in 2014 to 6.8 % in 2015. For 2016, the IMF forecasts growth of 6.3 %. Thereafter growth slows to around 6 % a year through 2020. China has to balance between stimulus measures to prevent a hard landing, stopping soaring indebtedness and continuing market reforms. IMF noted that China should move ahead with reforms giving e.g. greater prominence to interest rate policy in setting monetary policy and moving gradually to a floating exchange rate. Given the size and global importance of China’s economy, growth below forecast poses a significant risk to world economic growth overall.

The October WEO revised downward the IMF’s Russia forecast, which now sees a contraction of 3.8 % this year and further contraction of 0.6 % next year. Russia’s feeble growth prospects also seem locked in over the longer term; the IMF now predicts growth will remain at 1–1.5 % a year from 2017 to 2020. The reasons for poor growth performance included low oil prices, on-going sanctions and long-term structural problems. The IMF made its usual appeal for Russia to improve its business environment, even if conditions in reality still seem headed in an opposite direction.

The WEO report sees the average price of oil (Brent grade) rising from $53 a barrel this year to $66 in 2020.

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