IMF sees slower growth, rising risks to global economy

The International Monetary Fund on Tuesday cut its global growth projections for 2016 and 2017, warning that the world economy faces rising risks despite a plunge in oil prices that has boosted both developed and developing nations.

The international financial body now projects the world economy will expand at a 3.2 percent clip this year and 3.5 percent in 2017, down from the previous forecasts of 3.4 percent and 3.6 percent, respectively.

The U.S. forecast remained steady at 2.4 percent this year, with improving government finances and a stronger housing market helping to offset the drag on exports from a stronger dollar. Europe and Japan are seen as growing as a much slower pace, with Japan now seen as growing only 0.5 percent in 2016 and actually contracting by 0.1 percent next year.

Emerging markets, the engine of most global growth in recent years, will also struggle. China’s growth is expected be only 6.5 percent in 2016 and 6.2 percent next year, far below the rates of the past two decades, while Brazil, Russia and South America will either contract of show only slight growth. India is seen as a rare “bright spot” among developing economies, projected to grow 7.5 percent both this year and next.

The weaker forecast leaves the global economy more vulnerable to outside shocks and policy clashes that could push growth down even faster, the IMF warned in its latest World Economic Outlook. Among those risks: a prolonged slump in oil prices; a sharper slowdown in China; trade wars and rising tariff barriers; and unforeseen conflicts, epidemics and refugees crises.

“Lower growth means less room for error,” Maurice Obstfield, the IMF’s director of research, said Tuesday. “Persistent slow growth has scarring effects that themselves reduce potential output and with it, demand and investment.”