Global Economy: recovery still expected

The International Monetary Fund’s (IMF) biannual World Economic Outlook (WEO) was released in April. And the forecasts contained therein reinforced the increasingly broad-based expectation that global economic growth prospects will improve in 2017 and beyond. The IMF now expects global growth to accelerate from the estimated 3.1% recorded in 2016 to 3.5% in 2017 and 3.6% in 2018. And both the 2017 and 2018 forecasts were revised up fractionally since the WEO’s last major release in October. It is an upward revision to advanced economy growth forecasts, by 0.2pp to 2.0%, which has led to the improved global outlook in 2017. This marks the end of a long period in which the IMF had consistently downgraded its expectations.

Global: Economic forecast revisions for 2017 real GDP
Advanced economy prospects revised materially higher


Source: IFM Investors, IMF

The IMF justified the improvements in its forecasts by noting that “buoyant” financial markets and a long-awaited cyclical recovery in both manufacturing and trade are now underway. But equally, it cautioned that more persistent structural problems including low productivity growth, high income inequality and pressures for inward-looking policies meant risks to growth are still to the downside.

It should also be noted that despite better prospects in advanced economies it is the developing economies still accounting for much of global growth. This comes despite growth forecasts for this bloc being revised down 0.1pp to 4.5%. Developing economies are expected to account for around 60% of global growth in 2017 – with China a key driver accounting for over a third of this by itself. A notable revision to the IMF’s forecasts was its more positive outlook for China. April’s WEO now has growth at 6.6% and 6.2% for 2017 and 2018, respectively – up 0.4pp and 0.2pp since October’s forecasts. This was based on an anticipation of “continued policy support in the form of strong credit growth and reliance on public investment to achieve growth targets”.