IMF warns the global economy is ‘highly vulnerable’

The International Monetary Fund (IMF) has said the global economy has weakened further and warned it was “highly vulnerable to adverse shocks”. It said the weakening had come “amid increasing financial turbulence and falling asset prices”.

The IMF’s report comes before the meeting of G20 finance ministers and central bank governors in Shanghai later this week. It said China’s slowdown was adding to global economic growth concerns.

China’s economy, the second-biggest in the world, is growing at the slowest rate in 25 years. “Growth in advanced economies is modest already under the baseline, as low demand in some countries and a broad-based weakening of potential growth continue to hold back the recovery,” the Washington-based IMF said.

“Adding to these headwinds are concerns about the global impact of China’s transition to more balanced growth, along with signs of distress in other large emerging markets, including from falling commodity prices.”

The IMF also noted any future prospects for global growth “could be derailed by market turbulence, the oil price crash and geopolitical conflicts”. The agency has called on the G20 group to plan new mechanisms to protect the most vulnerable countries.

Earlier this year, the IMF downgraded its forecast for global economic growth. It now expects economic activity to increase 3.4% this year followed by 3.6% in 2017. It now expects economic activity to increase 3.4% this year followed by 3.6% in 2017.

That means growth of 0.2% less each year than when the agency last published a forecast in October. And there are warnings about the risks. The report says that if key challenges are not successfully managed, “global growth could be derailed”.

In many respects, the picture is a familiar one. The recovery after the financial crisis continues. But in the rich countries, it is still “modest and uneven”. Only three large advanced economies are forecast to beat 2% growth this year: the US, the UK and one of the eurozone’s crisis-hit nations, Spain, which has had its forecast upgraded. The forecast for the UK is unchanged, at 2.2% for both years.

The report describes the picture for many emerging and developing economies as “challenging”.

The largest downgrade for any individual economy is Brazil, where the IMF now predicts a contraction of 3.5% this year and no growth at all in 2017. That reflects the political uncertainty arising from the investigation into corruption at the oil company Petrobras. Russia, hit by the decline in prices of its oil exports, is also likely to remain in recession this year before returning to modest growth next year.