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Business News/ Opinion / Five trends that define the world economy
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Five trends that define the world economy

The latest data from the IMF outlines the shape of the world economy in the years ahead. Here are some highlights

Photo: BloombergPremium
Photo: Bloomberg

The latest data from the International Monetary Fund (IMF) outlines the shape of the world economy in the years ahead. Here are some highlights:

1.US growth has been revised lower

The IMF’s World Economic Outlook (WEO) for April 2015 estimates US gross domestic product (GDP) to grow at 3.1% for 2015, which is a sizable 0.5 percentage points lower than its earlier estimate. That raises the question: if the IMF now believes US growth will not be quite as robust as it thought earlier, will the US Federal Reserve raise its policy rate this year? Note that the IMF is also projecting a slowing of US growth in the fourth quarter of 2016 to 2.8% over the same period of 2015. In fact, the WEO database predicts that US GDP growth will slow to 2.7% in 2017, 2.4% in 2018 and even slower thereafter.

2. India’s GDP growth will not cross 8% till 2020

True, the IMF’s latest WEO has raised India’s GDP growth rates to 7.5% for the current fiscal year. That’s an increase of 1.2 percentage points, no doubt because of the revision in growth rates by the Indian government’s Central Statistics Office. But here’s the thing: the WEO database shows that India’s GDP growth right up to 2020 would not exceed 8%. That’s very different from the Indian government’s forecasts—the Economic Survey is predicting growth between 8.1% and 8.5% in the current fiscal year. On the other hand, the IMF expects Chinese growth to bottom out at 6% in 2017 and move up a bit thereafter.

3. The new normal in world growth

IMF chief Christine Lagarde has talked about “the New Mediocre", a protracted period of low growth for the world economy. Economist Lawrence Summers has warned of a period of “secular stagnation" for the world. The IMF’s April 2015 WEO doesn’t make any change in its forecast for 2015 world GDP growth and its database predicts that global growth will continue to rise slowly but steadily. Nevertheless, global growth is expected to remain below 4%, which underlines how exceptional the period 2003-2007 was, with an average growth rate of almost 5%. Perhaps world growth is merely going back to the ‘old normal’ after the heady boom of the noughties.

4. Commodity prices will remain low

After the recent plunge, the IMF expects oil prices to start rising from 2016, but non-fuel prices are predicted to fall a bit next year, too. While the IMF’s commodity index, which includes both fuel and non-fuel price indices, is forecast to increase from 2016 onwards, the non-fuel price indices and industrial inputs price indices (including agricultural raw materials and metals) are predicted to continue to fall. Inflation is therefore expected to remain low.

5. World trade growth will be muted

Are the heady days of globalization behind us? The IMF’s April WEO lowers its forecast of growth in world trade volume by 0.1 percentage point for 2015 and 0.6 percentage points for 2016. Looking ahead, while growth in world trade is forecast to rise, it is expected to be lower than growth in the last two decades.

Source: International Monetary Fund, World Economic Outlook database, April 2015

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Published: 20 Apr 2015, 12:41 AM IST
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