The global economic recovery is strengthening, according to the International Monetary Fund (IMF).In its latest World Economic Outlook, the IMF has revised its forecast for the global economy and is now expecting slightly stronger growth.It now predicts growth of 3.6% this year and 3.7% in 2018. The IMF’s forecast for the UK is the same as in its July report. It expects growth to slow from 1.8% in 2016 to 1.7% this year and to 1.5% in 2018.Although the UK is an exception to the pattern of strengthening growth in the IMF’s assessment, for this year and next the growth projections are stronger than two other G7 economies, Japan and Italy. The IMF’s judgment on the UK’s prospects reflects weaker growth in consumer spending because of the fall in the value of the pound and the impact that had on real, inflation-adjusted, incomes. However, it does say it expects inflation to decline gradually to the Bank of England’s 2% target. For the medium term, the report says the UK’s growth outlook is highly uncertain and will depend in part on the new economic relationship with the EU and the extent of any increase in barriers to trade, migration and cross-border financial activity. The report says the global economy is experiencing a “welcome cyclical upturn after disappointing growth over the past few years”. Several countries have had their forecast upgraded – the largest changes this year are for Canada, Russia (partly because of stabilising oil prices) and Brazil, where the figures are still rather weak, but an improvement on the sharp contractions of the previous two years.
There are a small number of downgrades as well, however, and they are substantial in the case of India, because of the lingering effects of a currency exchange last year and uncertainty associated with a new tax.That said, India’s economy is still expected to see robust growth – not far below 7% this year and above that level in 2018.South Africa also gets a hefty downgrade, with subdued growth because of the impact of political uncertainty on business and consumer confidence.Productivity worries The report also warns that the global recovery is not complete and faces risks. Inflation is too low in many countries. That means that central banks have little room to respond to future economic weakness by cutting interest rates as they are already so low – because price rises are so subdued. The IMF has persistent concerns about weak growth in productivity, which impairs prospects for rising living standards. The rapid expansion of credit in China increases the risk of sharp slowdown there and the IMF says the government needs to intensify its efforts to head off that danger. There’s also a hint of concern about the administration of President Trump when the report says that “uncertainty about policy is more of a concern than usual reflecting, for example, difficult-to-predict US regulatory and fiscal policies”.