IMF lowers global GDP growth estimate to 3.1pc

OREANDA-NEWS. The IMF has revised downwards its expectations for global economic growth, as oil exporters evidence the ramifications of substantially lower crude prices.

Releasing its October World Economic Outlook (WEO) today in Lima, Peru, the IMF projected world output will grow 3.1pc this year. That's down 0.2pc from the IMF's expectations just three months ago and 0.3pc lower than the 3.4pc growth seen last year.

Next year, the IMF expects global GDP growth will pick up to 3.6pc, but that too is down 0.2pc from the fund's projections in July.

While the US and other advanced economies are expected to see some uptick in economic activity, emerging and developing economies are being hammered by lower oil and other commodity prices, depreciating currencies and higher financial market volatility.

"A return to robust and synchronized global expansion remains elusive," economic counselor Maurice Obstfeld wrote in a forward to the WEO. "Downside risks to the world economy appear more pronounced."

The Chinese economy, the second largest in the world, is expected to slow to 6.8pc this year, down from 7.3pc last year, as it transitions away from an export-driven economy. India is maintaining its growth path, with its GDP expected to expand 7.3pc this year.

But in an era of low commodity prices, oil exporters are being especially hard-hit.

The IMF projects Brazil's economy, for instance, will contract by 3pc this year — 1.5pc worse than anticipated back in July — and then by another 1pc next year, as it struggles with lower oil revenues and deepening political crisis. Venezuela has tumbled into a deep recession. Its economy is expected to shrink by 10pc this year and another 6pc in 2016, while inflation gallops at more than 100pc/yr. And Russia's economy, feeling the brunt of western economic sanctions in addition to lower crude prices, is expected to shrink by 3.8pc, 0.4pc more than the IMF was expecting in July, and then another 0.6pc in 2016.

In the Middle East, Saudi Arabia's economy is expected to grow by 3.4pc this year, up 0.6pc from the IMF's July projections, but then only 2.2pc in 2016. Iraq is expected to have no growth this year and then jump 7.1pc in 2016, while Iran's economy is projected to grow 0.8pc this year and then 4.4pc next year as sanctions are lifted. Among sub-Saharan oil exporters, Nigeria's growth is expected to slow to 4pc this year, down from 6.3pc in 2014.

Even among advanced economies, the lower commodity prices are hurting countries such as Canada, Norway and Australia.

In conducting its analysis, the IMF assumes world oil prices — a mix of Brent, Dubai and WTI prices — will average \\$51.62/bl this year and \\$50.36/bl in 2016, down from \\$96.25 in 2014.

The IMF said recent developments "suggest that oil markets will take longer to adjust to current conditions of excess flow supply," noting that oil prices through 2020 are projected to be lower than they were just a few months ago.

"Supply has remained more resilient than expected, and global activity has been weaker," the WEO said. "While lower oil prices have supported demand in importers, other shocks have partly offset the effects and so far prevented a broad-based pickup in activity, which in turn would have supported oil market rebalancing."

The lower oil prices have encouraged higher consumption in advanced economies. But the pickup in demand has been muted in the US and Japan. And investment in advanced economies has not been as robust as many had anticipated, in part because of lower spending in the oil sector.