Economy Watch: IMF Lowers Growth Outlook

The organization projects that the world's advanced economies will expand just 1.6 percent, down from the 1.8 percent IMF forecast in July.

030112-Globe-user-ToastyKenThe International Monetary Fund has revised downward its estimates for global growth, along with U.S. economic growth, in the latest edition of World Economic Outlook, which it publishes quarterly. Worldwide, the organization predicts that growth will slow to 3.1 percent in 2016 before recovering to 3.4 percent in 2017.

The forecast, revised down by 0.1 percentage points for both 2016 and 2017 compared with the IMF’s April estimate, reflects a more subdued outlook for advanced economies following weaker-than-expected growth in the United States and Brexit. These developments, according to the IMF, have put further downward pressure on global interest rates, as monetary policy is now expected to remain accommodative for longer (though conventional wisdom still thinks the Fed might raise rates in December).

Advanced economies will expand just 1.6 percent in 2016, less than last year’s 2.1 percent pace and down from the IMF July forecast of 1.8 percent. The IMF has lowered its outlook for U.S. growth this year to 1.6 percent, compared with 2.2 percent in July, following a disappointing first half caused by weak business investment. Even so, the U.S. economy is likely to expand 2.2 percent next year as the drag from lower energy prices and the strong dollar fades.

Uncertainty following the Brexit referendum in June took a toll on the confidence of investors. Growth in the United Kingdom is predicted to slow to 1.8 percent this year and to 1.1 percent in 2017, down from 2.2 percent last year. Surprisingly, however, that rate is still higher than the U.S. estimate and would outpace projections for the euro zone (1.7 percent) and Japan (0.5 percent).