Amid the plunge in oil prices, the International Monetary Fund (IMF) has cut its outlook for both global growth and for Canada, too.
For 2015, global growth is now forecast at 3.5%, rising slightly to 3.7% in 2016. This represents a downward revision of 0.3% from the IMF’s previous forecast. Similarly, it cut its forecast for Canada to 2.3% this year, down 0.1% from the prior call; and, to 2.1% in 2016, which represents a 0.3% reduction.
At the global level, the IMF says that its forecast revisions “reflect a reassessment of prospects in China, Russia, the euro area, and Japan as well as weaker activity in some major oil exporters because of the sharp drop in oil prices.” It notes that the only major economy for which growth projections have been raised is the U.S., where lower oil prices are expected to represent a boost to growth.
In terms of risks to the gloomier outlook, the IMF says that they are more balanced than they were in October. The main upside risk is a greater boost from lower oil prices, although there is uncertainty about the persistence of the oil supply shock, it says.
On the downside, the major risks relate to shifts in sentiment and volatility in global financial markets, especially in emerging market economies, it says. Additionally, stagnation and low inflation are still concerns in the euro area and Japan, it notes.
For the U.S., the IMF says that growth is now projected to exceed 3% in 2015 and 2016, “with domestic demand supported by lower oil prices, more moderate fiscal adjustment, and continued support from an accommodative monetary policy stance, despite the projected gradual rise in interest rates.”
Lower oil prices are also seen as a boost to European growth, along with further monetary policy easing, a more neutral fiscal policy stance, and the recent euro depreciation. But, it cautions that these factors will be offset by weaker investment prospects. Indeed, the recovery is projected to be somewhat slower than forecast in October, with annual growth projected at 1.2% in 2015 and 1.4% in 2016.
In emerging market and developing economies, growth is projected to remain broadly stable at 4.3% in 2015 and to increase to 4.7% in 2016, the IMF says, although this represents a weaker pace than its previous forecast.