A risky recovery — on IMF’s global growth predictions 

A risky recovery — on IMF’s global growth predictions 

Context

Abroad-based recovery in global growth may be gathering steam, but the price the world will have to pay for it is still unknown. According to the IMF’s January update of the World Economic Outlook, the global economy is all set to clock its best growth rate in seven years in 2018 following a pick-up since mid-2016.

What

The IMF estimated that the global economy could accelerate to 3.9% in both 2018 and 2019, an upward revision of 0.2 percentage point over its previous estimates in October for both years, boosted by a cyclical recovery in global growth and the historic tax cuts in the U.S.

India’s economy to grow

India’s economy is projected to grow at 7.4% during the financial year 2019, and at an even faster pace of 7.8% the following year

China to slowdown

If the IMF’s predictions come true, India will be the fastest-growing major economy next year as China’s growth is expected to slow from 6.6% this year to 6.4% in 2019.

Growth in Europe too?

What comes as a further surprise is the upward revision in growth forecasts for many countries in Europe, thanks to stronger demand.

Potential threats

The IMF, however, was not oblivious to the threats that could severely derail the broad-based economic recovery

Rise in debts

In particular, it warned about the “troubling” rise in debt levels across countries, including the U.S., which could pose a huge risk to financial stability and drag down economic growth.

Easy monetary policies might be derailed

It is no secret that since the 2008 financial crisis the global economy has been propped up mainly by the unprecedented easy money policies adopted by global central banks.

Such monetary conditions could cease to exist.

High interest rates

• While central banks until now have been careful not to spook markets with the prospect of higher interest rates, it is unlikely that they can keep markets calm forever.
• While it is hard to predict the next downturn, it seems the day of reckoning may not be too far as consumer price inflation begins to push central banks to rethink their dovish stance.

Conclusion

The IMF is right to urge countries to make use of the current rosy conditions to enact useful structural reforms. It is time countries recognise that monetary policy alone won’t solve all growth problems.