IS THERE a global economic crisis on the horizon? Probably not. Is the world in danger of falling into recession? Not soon. Yet the IMF’s latest forecast update, part of its twice-yearly “World Economic Outlook”, is nevertheless resolutely downbeat. Speaking in Washington, DC, the fund’s chief economist, Maurice Obstfeld, outlined yet another set of downgrades to its global GDP growth projections. It is more likely that the next forecast revision will again be down, not up. One of the big risks to the world economy, he said, is from “non-economic” factors, fund-speak for grubby politics. A world economy heading for the growth doldrums, he cautioned, might be a politically perilous place.
The actual forecast numbers are far from horrible. The fund nudged down its global growth projection for 2016 from 3.4% to 3.2%. That is still a shade faster than growth in 2015. The revisions are broad-based: America, Europe and the emerging world as a bloc all saw similar downgrades (see chart). The forecast for sub-Saharan Africa was pared back the most, in large part because of a gloomier outlook for oil-rich Nigeria, the continent’s largest economy. The recent recovery in crude prices will take some pressure off oil producers, but “probably though we won't be seeing prices at the $100 a barrel level for some time, if ever,” said Mr Obstfeld. Of biggish economies, only China escaped a downgrade. The fund is more confident than it was in January that stimulus measures there will work. But short-term optimism could not mask enduring worries about China further out. There is a concern about the quality of China’s growth, said Mr Obstfeld, as fresh credit is directed towards sputtering industries.
The scenario the fund seems most concerned about is a steady slide in global GDP growth that feeds on itself (by discouraging investment), only to exacerbate political tensions, which in turn makes fixing the economy even harder. Brazil shows how a bad economy can be made worse by political paralysis. Low growth might add to the “rising tide of inward-looking nationalism” in the rich world, said Mr Obstfeld. Politics in America is moving against free trade. And for once, Greece is not the biggest risk factor in Europe. The refugee crisis in the European Union has already put pressure on its open-borders policy; there is a “real possibility” that Britain might leave the EU.
The IMF has some familiar remedies for what ails the global economy: keep monetary policy loose, augment it with fiscal stimulus where possible, and add some pro-growth reforms to the mix. Such action is needed to insure against the downside risks the fund identifies. But the world should also now be making contingency plans for a co-ordinated response if a financial shock hits. “There is no longer much room for error,” said Mr Obstfeld, with a certain weariness.