In January this year, the International Monetary Fund, or IMF, projected global growth at 3.4% in 2016 and 3.6% in 2017. The report went on to state that the outlook remains tilted to the downside and relates to ongoing adjustments in the global economy: a generalized slowdown in emerging market economies, China’s rebalancing, lower commodity prices, and the gradual exit from extraordinarily accommodative monetary conditions in the United States. If these key challenges are not successfully managed, global growth could be derailed.
Last week that changed. The global growth forecast is now 3.2% this year, picking up to 3.5% in 2017 with financial risks being prominent, together with geopolitical shocks and political discord.
Andrew Brunner, Head of Investment Strategy at Morningstar UK shares his views.
With most revisions now reported, the last three months of 2015 recorded the slowest pace of global growth since the European Union and Japan were both in recession in 2012.
From a developed economy perspective this was principally due to a sizeable investment-led slowdown in U.S. domestic demand and a consumption-led contraction in Japan.
In the emerging countries, it reflected slower quarterly growth in China and India as well as the on-going recessions in Brazil and Russia.
The scale of the previously predicted first quarter global rebound has suffered downward revisions as the relapse in U.S. private sector domestic demand has continued. Another weak GDP figure, with growth again possibly below 2%, appears in prospect. But hopes of an acceleration into the spring remain intact with a second quarter – the three months from March to June – rebound to 3% to be led by an upturn in developed market growth, particularly from the U.S. and Japan.
With stronger data also due from China and India, emerging markets are also expected to record a considerably better quarter.
Following several weak quarters a rebound in global industrial production is predicted. Indeed, the latest manufacturing PMIs point to some stabilisation with the global index increasing by more than expected and an accompanying rise in the orders/inventory ratio. Particularly encouraging were marked improvements in China and emerging markets PMIs.
Certainly, the waning of financial market turbulence and global recession fears were positives and augmented by recently enacted central bank monetary policy support and the prospect of targeted fiscal stimulus measures. Even so, following the weak start to 2016, the full year global growth forecast remains unchanged at around 2.5%.
Andrew Brunner's views initially appeared on Morningstar.co.uk.
