The International Monetary Fund has cut its projections for global growth from earlier forecasts in October, citing factors such as weak investment. It also revised downward expectations for major economies such as the eurozone and Japan.
The semiannual World Economic Outlook by the Washington-based lender said Monday it expects the world economy to expand 3.5 percent overall in terms of real gross domestic product, down 0.3 of a percentage point from the previous projection.
A boost from lower oil prices to global growth “is projected to be more than offset by negative factors including investment weakness,” the report said.
Meanwhile, global growth is projected to be 3.7 percent in 2016, down 0.3 of a point from the earlier estimate, the IMF said.
It forecast 0.6 percent growth for Japan this year, down 0.2 of a point from the October projection, due to sluggish demand in the private sector following the hike of the consumption tax rate to 8 percent from 5 percent last year.
The projection was significantly bleaker than the 1.2 percent expansion the World Bank forecast last week. The IMF also slashed its projection for Japan’s growth in 2016 to 0.8 percent, down 0.1 of a point.
Japan’s lack of sustained economic growth was “one of the major disappointments of 2014,” IMF chief economist Oliver Blanchard told reporters following the report’s release.
Sustained growth in Japan requires not just a boost in short-term private demand, but also higher potential for growth in the medium term, Blanchard said.
The report said: “Policy responses — additional quantitative and qualitative monetary easing and the delay in the second consumption tax rate increase — are assumed to support a gradual rebound in activity.
“Stagnation and low inflation are still concerns in the euro area and in Japan,” it said.
To combat the threat of stagnation in both economies, Blanchard said that “Using the three arrows, to borrow from ‘Abenomics,’ is clearly the way to go.”
But while praising the potential of Prime Minister Shinzo Abe’s three-pronged strategy of monetary policy, fiscal policy and structural reform, he said Japan has not yet implemented sufficient structural reforms to spur private demand.
The IMF said the eurozone economy will expand 1.2 percent this year, down 0.2 of a point from the October projection, and 1.4 percent next year, down 0.3 of a point.
The United States was the only major economy for which the IMF raised its growth projections, with the world’s largest economy forecast to expand 3.6 percent this year, up 0.5 of a point, and 3.3 percent next year, up 0.3 of a point.
The report warned a likely hike in U.S. short-term interest rates could cause turmoil in many economies.
The IMF drastically cut its outlook for the Russian economy to a 3 percent contraction this year, down 3.5 points from the previous estimate and compared with 0.6 percent growth last year, due to “sharply lower oil prices and increased geopolitical tensions,” it said.
The IMF cut its growth projections for China and India this year to 6.8 percent, down 0.3 of a point, and 6.3 percent, down 0.1 of a point, respectively.
“Sizable uncertainty about the oil price path in the future and the underlying drivers of the price decline has added a new risk dimension to the global growth outlook,” it added.