IMF bullish on global outlook
World output will relatively increase by 3.4 percent this year, compared to last year’slower growth of 3.1 percent, says the IMF World Economic Outlook update report released today.
“The baseline forecast for the global economy points to a pickup in growth over the
rest of the forecast horizon from its subdued pace this year, in the context of positive financial market sentiment, especially in advanced economies”, says the report. It however noted that the potential for disappointments is high, as underscored by repeated growth markdowns in recent years.
“After a lacklustre outturn in 2016, economic activity is projected to pick up pace in 2017 and 2018, especially in emerging market and developing economies. However, there is a wide dispersion of possible outcomes around the projections, given uncertainty surrounding the policy stance of the incoming U.S. administration and its global ramifications”, the report said. The April update of the report is expected to be more certain as more clarity emerges on U.S. policies and their implications for the global economy.
The report however said that the U.S. dollar appreciated in real effective terms by over 6 percent since August last year. A report published by Sagaci Research last year established that the US dollar is overvalued by 12 percent in Zimbabwe. This continues to affect the competitiveness of the country’s exports.
China is projected to post lower growth of 6.5 percent this year, compared to last year’s growth of 6.7 percent, as the Asian giant continues on slowing growth. This is likely to affect the demand for commodities and the prices as well. South Africa’s economy is also expected to post a modest growth of 0.8 percent while Sub-Saharan Africa will grow by 2.8 percent.
The IMF however sees a number of risks with the potential to constrain growth this year’s anticipated growth. “Increased restrictions on global trade and migration would hurt productivity and incomes, and take an immediate toll on market sentiment”, the report said.
The Fund said that, in many low-income economies, low commodity prices and expansionary policies have eroded fiscal buffers and led in some cases to a precarious economic situation, heightening their vulnerability to further external shocks.
“Emerging market and developing economies face starkly diverse cyclical positions and structural challenges. In general, enhancing financial resilience can reduce the vulnerability to a tightening of global financial conditions, sharp currency movements, and the risk of capital flow reversals”
“Economies with large and rising nonfinancial debt, unhedged foreign liabilities, or heavy reliance on short-term borrowing to fund longer-term investments must adopt stronger risk management practices and contain balance sheet mismatches”, said the report.
In low-income countries that have seen their fiscal buffers decrease over the last few years, the report highlighted that the priority is to restore those buffers while continuing to spend efficiently on critical capital needs and social outlays, strengthen debt management, improve domestic revenue mobilization, and implement structural reforms that pave the way for economic diversification and higher productivity.
“For the countries hardest hit by the decline in commodity prices, the recent market firming provides some relief, but the adjustment to re-establish macroeconomic stability is urgent. This implies allowing the exchange rate to adjust in countries not relying on an exchange rate peg, tightening monetary policy where needed to tackle increases in inflation, and ensuring that needed fiscal consolidation is as growth-friendly as possible”, said the report.
The report prescribed that over the longer term, countries highly dependent on one or a few commodity products should work to diversify their export bases.