Global growth is bottoming out but the projected recovery of the world’s developed economies remains uncertain, according to data from the IMF.
Manufacturing activity is showing signs of tentative stabilisation with volatility diminishing and policy easing, but the way forward is far from clear.
“The projected recovery continues to be largely driven by improved prospects in previously underperforming emerging market economies (e.g. Brazil, India, Mexico, Russia, Turkey) where growth is expected to increase by about one percentage point or more relative to last year,” the IMF wrote.
“While a more favourable international environment is expected to support growth in the euro area, growth in G20 advanced economies is projected to remain subdued this year, in part amid a phasing out of fiscal stimulus and lower business investment in the US and reduced private demand following a consumption tax hike in Japan.”
Prospects for stronger and more balanced growth also remain elusive, with growth rates too low to materially raise living standards and strengthen prospects for disadvantaged groups.
“This adds to existing challenges in many economies of creating sufficient job opportunities for the young or lower skilled, not least amid changing demands for labour from technological change,” the IMF wrote.
“Alongside, while current account excess surpluses and deficits have narrowed somewhat, stock imbalances have continued to grow; and low interest rates have prompted investors to move into riskier and less liquid securities, contributing to stretched asset valuations and a continued build-up of vulnerabilities.”
The IMF called for governments not to withdraw policy support too quickly, with fiscal stimulus also likely to play a part in the global turnaround.
“Fiscal policy must balance the needs for lifting potential growth, ensuring debt sustainability, and protecting vulnerable groups,” the IMF wrote.
“Where fiscal space allows, policymakers can take advantage of low rates for productivity-enhancing investment to lift potential growth.”
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