IMF
cuts global growth forecast as China, falling oil prices
weigh
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[January 19, 2016]
By David Lawder
WASHINGTON (Reuters) - The International
Monetary Fund cut its global growth forecasts for the third time in less
than a year on Tuesday, as new figures from Beijing showed that the
Chinese economy grew at its slowest rate in a quarter of a century in
2015.
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To back its forecasts, the IMF cited a sharp slowdown in China trade
and weak commodity prices that are hammering Brazil and other
emerging markets.
The Fund forecast that the world economy would grow at 3.4 percent
in 2016 and 3.6 percent in 2017, both years down 0.2 percentage
point from the previous estimates made last October. It said
policymakers should consider ways to bolster short-term demand.
The updated World Economic Outlook forecasts came as global
financial markets have been roiled by worries over China's slowdown
-- confirmed by official Chinese data on Tuesday -- and plummeting
oil prices.
The IMF maintained its previous China growth forecasts of 6.3
percent in 2016 and 6.0 percent in 2017, which represent sharp
slowdowns from 2015.
China reported that growth for 2015 hit 6.9 percent after a year in
which the world's second biggest economy endured huge capital
outflows, a slide in the currency and a summer stock market crash.

The figures raised hopes that Beijing would bring in more stimulus
policies, prompting a stock market rally.
Concerns about Beijing's grip on economic policy have shot to the
top of global investors' risk list for 2016 after falls in its stock
markets and the yuan stoked worries that the economy may be rapidly
deteriorating.
The Fund said a steeper slowing of demand in China remained a risk
to global growth and that weaker-than-expected Chinese imports and
exports were weighing heavily on other emerging markets and
commodity exporters.
"We don't see a big change in the fundamentals in China compared to
what we saw six months ago, but the markets are certainly very
spooked by small events there that they find hard to interpret," IMF
economic counselor Maurice Obstfeld said in a videotaped statement.
OVERREACTING
He said global financial markets seemed to be overreacting to
falling oil prices and the risk of a sharp downturn in China.
Obstfeld also said it was critical that China is clear about its
overall economic strategy, including its currency.
"It's not a stretch to suggest that (markets) may be reacting very
strongly to rather small bits of evidence in an environment of
volatility and risk aversion," Obstfeld said at a news conference.
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"The oil price puts stresses on oil exporters ... but there is a
silver lining for consumers worldwide, so it's not an unmitigated
negative."
The IMF report said continued market upheaval could also help drag
growth lower if it leads to major risk aversion and currency
depreciations in emerging markets. Other risks included further
dollar appreciation and an escalation of geopolitical tensions.
The Fund said the outlook for an acceleration of U.S. output was
dimming as dollar strength weighs on manufacturing and lower oil
prices curtail energy investment. It now projects U.S. economic
growth at 2.6 percent for both 2016 and 2017, down 0.2 percentage
point in both years from the October forecast.
In Europe, lower oil prices will help support private consumption,
so the IMF said it added 0.1 percentage point to its 2016 euro area
growth forecast, bringing it to 1.7 percent, where it will remain
for 2017.
Brazil will stay mired in recession in 2016, with output contracting
3.5 percent, a 2.5 percentage-point downward shift from the previous
forecast, and there will be essentially no growth in 2017 as Latin
America's largest economy struggles with lower Chinese demand.
Obstfeld said the Fund was encouraging monetary policy to remain
expansive in some countries, such as Japan and in Europe.

"Where there is fiscal space, more infrastructure spending is
certainly something that should be on the table," he added.
(Reporting By David Lawder; Editing by Meredith Mazzilli and Giles
Elgood)
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