7 days of Economics: Global economy: In the grip of growth fears

Each week, the Economic Research Department of BNP Paribas reports on economic news.
The IMF published this week updated economic forecasts. 2016 world growth would remain the same as in 2015 (3.2%) and accelerate only slightly in 2017(3.5%). Regardless of what has been said in the media, the IMF is not especially alarming, with the exception of Japan. The underlying assumptions are about resilience: the US economy would not decelerate despite the collapse of investment in the shale oil & gas sector and the appreciation of the dollar; emerging countries would resist the slowdown in China, and the Brazilian and Russian recessions, even though non-oil commodity prices are not expected to recover until end-2007. But the IMF points out mounting downside risks. First, the slowdown in potential growth that reflects a lack of investment (see “US: Potential problem”). Lack of investment is actually the main reason why growth forecasts for the Eurozone is capped at 1.6%. The IMF chief economist is urging governments benefiting from “fiscal space” to take advantage of low real interest rates to invest in infrastructure. Second: a hard-landing in China and no stabilization in either Brazil or Russia. The Chinese authorities are facing two conflicting goals: supporting growth and reducing the overall leverage of the economy, while Brazil and Russia both need a rebound in commodity prices and a relaxation of tensions, either domestic (Brazil, see “Brazil: Rebuilding confidence for a fresh start”) or international (international restrictions for Russia).
François Faure
- United States: Potential problem