IMF cuts global growth forecast amid weaker prospects for China, Russia and Japan

28 January 2015

Weaker economic growth prospects in China, Russia and Japan have led the International Monetary Fund (IMF) to lower its global growth forecasts for 2015 and 2016, according to the January 2015 British Chambers of Commerce (BCC) monthly economic review.

The IMF growth forecast for 2015 has been lowered to 3.5 per cent, and for 2016, to 3.7 per cent, both seeing a 0.3 per cent cut. Other factors for reduced growth include weaker activity among major oil exporters because of the sharp drop in oil prices.

The report says: “On the upside there is the prospect of a greater boost from lower oil prices with some countries gaining from energy savings and others facing smaller tax and export revenues.”

The BCC review also says that the Eurozone forecast is downgraded to annual growth of 1.2 per cent in 2015 and 1.4 per cent in 2016 after avoiding recession “by the narrowest of margins” in 2014. However, the IMF expects Eurozone activity to be supported by lower oil prices, expansionary monetary policy and the recent Euro deprecation.

Japan fell into a technical recession in the third quarter of 2014, the review says, as domestic demand failed to accelerate as expected after the rise in the consumption tax rate in the previous quarter.

As a result the IMF has downgraded Japan’s growth forecast for this year to 0.6 per cent. The review adds: “However, policy responses – additional quantitative monetary easing and a delay in the second consumption tax increase – are expected to support a gradual rebound and, together with the oil price boost and yen depreciation, will strengthen growth to above trend in 2015-16.”

According to the BCC review, emerging markets have also lost some of their shine with China’s economy falling to its lowest growth rate in 24 years in 2014. “The government is continuing to shift its dependence on heavy investment and government spending” the review adds. “However, slower growth in China will also have important regional effects which partly explain the downward revisions by the IMF in much of emerging Asia.”

The IMF has lowered China’s growth forecast for the next two years forecasting GDP of 6.8 per cent in 2015, down from 7.1 per cent, and 6.3 per cent in 2016, down from 6.8 per cent.

Meanwhile Russia, the world’s largest energy exporter, has been badly affected by the fall in oil prices, a 40 per cent plunge in the rouble against the dollar and sanctions imposed by the US and its allies over the Ukraine conflict.

The review says: “Oil and gas contribute about 50 per cent of Russia’s budget revenue. Investment is expected to contract for the third year in a row in 2015 because of continued uncertainty, restricted access to international financial markets by Russian companies and banks and lower consumer demand.”

With this much weaker economic outlook, the IMF has downgraded Russia’s growth forecast to minus three percent for 2015.

Follow Chamber International @ChamberInt.