WASHINGTON – World finance officials who meet in Washington this week confront a bleak picture: Eight years after the financial crisis erupted, the global economy remains fragile and at risk of another recession.
“Growth has been too slow for too long,” Maurice Obstfeld, chief economist of the International Monetary Fund, warned on the eve of the spring meetings of the IMF, the World Bank and the Group of 20 major economies Thursday through Saturday.
The IMF on Tuesday downgraded its outlook for growth for most regions and for the global economy as a whole. It now foresees a weaker financial landscape than it did in January. Like the World Bank and the Organization for Economic Cooperation and Development, the IMF has repeatedly overestimated the strength of the world economy in the aftermath of the 2008 financial crisis.
Problems span the globe. China’s sharp slowdown has hurt commodity-exporting countries by driving down demand for everything from iron ore to coal. Prices of raw materials have sunk as a result.
A rising dollar has pinched American factories by making their goods more expensive in foreign markets and contributing to a sharp deceleration in U.S. growth since late 2015. The 19 countries that use the euro currency have struggled to gain any momentum despite aggressive easy-money policies from the European Central Bank. Japan’s economy is hobbled by consumers wary of spending.
Obstfeld expressed concern about volatility in financial markets, the refugee crisis caused by violence in the Middle East and the possibility that the United Kingdom will leave the European Union — a prospect that could undercut Europe’s political and economic stability.
In the United States and Europe, Obstfeld said that “a backlash against cross-border economic integration threatens to halt or even reverse the postwar trend of ever more open trade.”
The dangers could “pull the world economy below stalling speed,” Obstfeld said.
Experts have been confounded since the financial crisis by trends that in some ways have defied economic history. Wages haven’t risen significantly in advanced economies even though unemployment has fallen. Inflation has remained dangerously subpar despite ultra-low borrowing rates engineered by major central banks. And those historically low loan rates have yet to encourage businesses to step up investment meaningfully.
One especially pressing concern: With rates already low and government debts high, many countries wouldn’t have much ammunition to fight another recession should one occur.
Obstfeld issued an urgent warning for countries to make a pre-emptive effort to jump-start their economies through continued low rates, government spending that encourages growth and reforms that promote economic efficiency.
“There is no longer much room for error,” he said.
The IMF foresees global growth of 3.2 per cent this year, down from the 3.4 per cent it predicted in January. Still, even the scaled-back forecast would mark an improvement over last year’s 3.1 per cent growth, the slowest pace since the recession year of 2009.
The agency cut its forecast for 2016 economic growth in the United States to 2.4 per cent from 2.6 per cent; Japan to 0.5 per cent from 1 per cent; and the 19-country eurozone to 1.5 per cent from 1.7 per cent.
The IMF did raise its growth forecast for China to 6.5 per cent from the 6.3 per cent it predicted in January. It cited resilient consumer demand and fast growth in Chinese services industries.