International Monetary Fund downgrades outlook for world economy to 3.7% growth

Finance Minister Asad Umar says decision is taken after consulting leading economists

Finance Minister Asad Umar says decision is taken after consulting leading economists

The delegation will leave for Bali today, to attend the meeting taking place on the Indonesian island from October 12 to 14. "The government inherited 6.6 per cent of fiscal deficit, more than a trillion rupees of unaccounted for losses in the energy sector and an unprecedented and debilitating current account deficit running at $2 billion a month". For next year, trade is seen growing just four percent, a half point less than the prior forecast.

Considering developments since then, however, that number appears over-optimistic: "rather than rising, growth has plateaued at 3.7 per cent", IMF Chief Economist Maurice Obstfeld said as the world body released the World Economic Outlook, its annual flagship report. Angola, contracting by 0.1 percent this year.

The IMF has slashed its latest growth forecasts, downgrading the US, China, the eurozone and the United Kingdom, as tit-for-tat tariffs bite.

Obstfeld said financial markets have overly emphasized short-term movements in China's currency, adding that the yuan has often quickly recovered from periods of volatility in recent years.

"Monetary policy in emerging market economies will need to manage the trade-off between supporting activity should external financial conditions tighten further, and keeping inflation expectations anchored", it said.

"Notwithstanding the present demand momentum, we have downgraded our 2019 United States growth forecast owing to the recently enacted tariffs on a wide range of imports from China and China's retaliation".

It maintained a 5.3 per cent growth forecast for the Southeast countries in 2018, but lowered the 2019 estimate slightly to 5.2 per cent.

Maurice Obstfeld said the International Monetary Fund does not see a generalised pullback from emerging markets, nor contagion that will spill over to those emerging economies which have stronger economies and have thus far avoided major outflows, such as those in Asia and some oil exporting countries. "Growth has proven to be less balanced than hoped". That is because new risks are building as long-term interest rates rise in the U.S.

The global organisation said that inflation is expected to pick up in India due to a narrowing output gap, and the effects of exchange rate depreciation and rising fuel prices.

"The forecast does not incorporate the impact of further tariffs on Chinese and other imports threatened by the United States, but not yet implemented, due to uncertainty about their exact magnitude, timing, and potential retaliatory response", the International Monetary Fund said.

Analysts said the devaluation and interest rate hike were a must to pull down aggregate demand to overcome the balance of payments challenge and cool down the overheated economy. "Any sharp reversal for emerging markets would pose a significant threat to advanced economies, as emerging market and developing economies make up about 40% of world GDP".

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