The International Monetary Fund pared back its forecasts for global growth and warned Tuesday that a British exit from the European Union, or Brexit, would be a further blow to the global economy.
Noting that global growth has been "too slow for too long," IMF chief economist Maurice Obstfeld warned policy-makers not to ignore downside risks.
"The current diminished outlook calls for an immediate and proactive response," Obstfeld said at a press conference following the release of the report.
"Lower growth means less room for error," he said, noting that weak growth, combined with other political and financial turbulence, could pull the world economy "below stalling speed."
Echoing IMF head Christine Lagarde, Obstfeld said the world economy was not currently in crisis. The IMF is "not in a state of alarm but in a state of alert," he said.
The Washington-based crisis lender lowered its forecast for 2016 global growth to 3.2 per cent, down 0.2 percentage points from the outlook issued in January.
The IMF's quarterly World Economic Outlook projects world growth of 3.5 per cent in 2017, compared to a forecast of 3.6 per cent three months ago.
The IMF similarly trimmed its outlook for nearly all major advanced economies, as well as for Russia and Latin America. The projections included marginal upticks for China and developing Asia, with one of the few bright spots being in Eastern Europe.
"Uncertainty has increased, and risks of weaker growth scenarios are becoming more tangible," the report found. "The fragile conjuncture increases the urgency of a broad-based policy response to raise growth and manage vulnerabilities."
Obstfeld warned of political risks, including a "political discussion ... turning increasingly inward" in the United States and Europe, with a possible turn toward protectionism.
"One manifestation of increased nationalism is the very real possibility that the United Kingdom exits the European Union, damaging a wide range of trade and financial relationships," he said. "At the same time, across Europe the political consensus that once propelled European unification, is fraying."
Speaking directly to the possible Brexit, Obstfeld said it was already weighing on investor confidence in Britain.
"It would be surprising to me ... if the reduction in Britain's access to the EU, which might occur, would not be a negative factor."
While allowing that negotiations between Britain and the EU could ultimately result in preserving the status quo, "we would still have the effects of uncertainty in the intervening period. It's hard to believe those would be positive.""
The migration crisis in Europe, the Middle East conflicts fuelling the refugee flows, and weather disruptions from the ongoing El Nino phenomenon in the Pacific are presenting further economic risks, Obstfeld said.
The IMF trimmed its 2016 forecast for advanced economies by 0.2 points to 1.9 per cent, and for emerging market and developing economies by the same amount to 4.1 per cent.
Around the world, oil-producing countries are hit especially hard by the lower IMF projections, including Russia, Brazil, the Middle East and Nigeria.
"Across advanced economies, activity slowed during the second part of 2015, and asset price declines and widening spreads have tightened financial conditions," the IMF said.
"If sustained, these developments could further weaken growth, with risks of a stagnation scenario with persistent negative output gaps and excessively low inflation."
The fund repeated its long-standing call for advanced economies to boost their growth through structural reforms to product and labour markets, and revenue-neutral tax reforms, while urging central banks to maintain lax monetary policies.
Obstfeld endorsed government infrastructure investment and public policies to encourage research and development.
Since the 2008 financial crisis, the IMF has urged governments - especially in the eurozone and Japan - to implement banking reforms to resolve bad loans, repair the sector and get growth-spurring lending flowing.
The document issued Tuesday again called for "concerted efforts to accelerate the repair of private sector balance sheets - especially in the euro area - to improve monetary policy transmission, ensure orderly de-leveraging and bolster credit supply, and contain financial sector risks."
Tuesday, October 4, 2016 - 16:50
Friday, May 13, 2016 - 15:58