IMF Lowers Its Growth Forecast For The Global Economy

Pedestrians in Moscow walked past a sign showing a drop in the value of the ruble last week. Russia is one of the oil-producing nations cited by the IMF as facing lower-than-expected growth.

Alexander Zemlianichenko/AP

The International Monetary Fund has once again pared its forecast for global growth, warning that emerging markets face steeper economic challenges in the year to come.

A report issued today says world economic output will grow by 3.4 percent in 2016 and 3.6 percent next year, a decline of 0.2 percent from the agency's previous forecast, in October.

While advanced economies such as the United States continue to enjoy a "modest recovery," the world as a whole is plagued by "weak and uneven growth," said Maurice Obstfeld, IMF economic counselor and director of research. He added:

"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."

The world faces such risks as a "sharper-than-expected" slowdown in China, geopolitical tensions and "risk aversion" among investors, according to the IMF report.

The stronger U.S. currency is also a potential problem for some countries that have "high dollar exposure." For instance, countries that have borrowed heavily in U.S. dollars will now have more trouble paying it off.

The higher dollar will also hurt exporters in the United States, where growth is expected to be 2.6 percent in both 2016 and 2017, a slight reduction from previous estimates.

The report sees especially slower growth in the Middle East and Latin America. Brazil's economy is now expected to shrink by 3.5 percent this year and to flatten out in 2017.

But other parts of the developing world, such as "India and parts of emerging Asia are bright spots, projected to grow at a robust pace," the report said.

The IMF forecast made clear that a sharp slowdown in oil prices has hurt countries such as Saudi Arabia, Nigeria and Russia. The global decline in the price of oil and other commodities is "worsening the outlook for already fragile commodity producers," the report said.

"All in all, there is a lot of uncertainty out there, and I think that contributes to the volatility," Obstfeld said. "We may be in for a bumpy ride this year, especially in the emerging and developing world."

The report noted that "structural reforms" are critical to stimulating growth. These include efforts to raise labor force participation in Japan and the Euro area, as well as reduce private debt overhangs. "Those long-term actions will actually have positive effects in the short run by increasing confidence and increasing people's faith in the future," Obstfeld said.

In emerging markets, policymakers need to "redirect economies to redirect activity to new sources of growth":

"These economies also need to press on with structural reforms to remove infrastructure bottlenecks, facilitate a dynamic and innovation-friendly business environment, and bolster human capital through reforms to education, labor, and product markets."