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IMF cuts global growth forecasts amid China concerns

Published 19/01/2016

Global growth forecasts have been cut over concerns about China and the geopolitical situation
Global growth forecasts have been cut over concerns about China and the geopolitical situation

Slowing growth in China and rising geopolitical tensions has led the International Monetary Fund (IMF) to cut its growth forecasts for the next two years.

In its latest World Economic Outlook, the IMF predicted world growth of 3.4% this year followed by 3.6% in 2017.

This is a cut in growth of 0.2% in each year from when the agency published its last forecasts in October.

The Washington-based fund said continued slowing growth in China and increased geopolitical tensions will disrupt global trade.

IMF economic counsellor Maurice Obstfeld said: "All in all, there is a lot of uncertainty out there, and I think that contributes to the volatility.

"We may be in for a bumpy ride this year, especially in the emerging and developing world."

The fund kept its forecasts for the UK economy unchanged at 2.2% this year and in 2017.

But earlier this month, Chancellor George Osborne said the UK faced a "dangerous cocktail of new threats" such as falling commodity prices, recessions in Brazil and Russia and rising tensions in the Middle East.

The fund cut its forecast for US growth this year to 2.6%, from 2.8% in October. It said while the economy remains "resilient" overall, the strong dollar is weighing on manufacturing, and low oil prices are curtailing capital investment.

Last month, the US hiked interest rates for the first time in almost a decade, which will strengthen the dollar. But its rate hike will impact commodity exporting nations, as many commodities are priced in dollars.

The fund said China's shift to an economy less driven by exports and manufacturing will see its economy slow to 6.3% this year and 6% in 2017, unchanged from its October forecasts.

On Tuesday Beijing posted data which showed that the second largest economy in the world grew at 6.9% last year, compared with 7.3% in 2014, its lowest level in 25 years.

The IMF estimates that the global economy grew 3.1% last year, the weakest pace since the 2009 recession.

Mr Obstfeld said: "This coming year is going to be a year of great challenges and policymakers should be thinking about short-term resilience and the ways they can bolster it, but also about the longer-term growth prospects."

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