Mother. Dr. Haidar Hussein Al Tohme *: global economy and the outlook for growth and stability

- PUBLISHED IN 02/08/2016

In his latest prospects for the global economy, issued in January 2016, International Monetary Fund cut its forecast about the economic growth rates in the various countries of the world. We discussed the report with caution most prominent challenges [...]

In his latest prospects for the global economy, issued in January 2016, International Monetary Fund cut its forecast about the economic growth rates in the various countries of the world. We discussed the report with caution leading the expected path of the global economy challenges during the current year and next, highlighting the various underlying causes behind the decline of the developmental momentum, led by emerging economies.

The global economy and growth intractable.

Characterized by global economic activity fluctuate slowdown over the past year due to declining growth rates in emerging market economies the economies of developing the fifth year in a row, while still the recovery in advanced economies is limited because of the continuing repercussions of the global financial crisis. In general, three major shifts contribute to reduced expectations about the prospects for global economic growth:

1. the weakness of the Chinese economy.

Severe slowdown in economic activity in China and restore the balance gradually with its transformation towards consumption and services away from investment and manufacturing industries on the financial landscape and global economic. And witnessing the overall growth in China decline marked by slowing the movement of imports and exports faster than expected pace, which is attributed in part to the weakness of investment and manufacturing activity. And spread the repercussions of these developments, coupled with market concerns about China's economic performance in the future, some other economies through trade channels and weak commodity prices, as well as through a decline in confidence and increased volatility in financial markets.

2. Low energy and commodity prices.

Imposes lower oil prices put pressure on public finance centers in the exporting countries of crude oil and cast its burden on growth prospects which, while demand in the household sector supports and reduces energy costs on the business sector in importing countries for crude oil, especially in economies advanced, where moves the entire lower prices to the end user. Although the decline in paid-up in oil prices to increase oil supply may support global demand due to an increased tendency to spending in oil-importing countries compared to oil-exporting countries, it has several factors in the current circumstances have led to a weakening of the positive impact of lower oil prices.

First, exercise fiscal challenges in many of the petroleum exporting countries negative role on the budget and the economy, which limits the ability of these countries to absorb the shock rates, and would require a reduction in domestic demand has dramatically.

Second, was to lower oil prices, a marked effect on investment in the oil and gas sector, which reduced as well as the rates aggregate demand in the world.

Third: With improvement in consumption levels in the oil-importing countries is weak compared to previous periods of low oil prices, may be a result of the continued reduction of debt financing in some of these economies. Or because of limited transmission of the effects of the decline in prices to consumers. Which it is a prime factor in weakening the recovery levels in many emerging market economies and developing economies.

3. tighten monetary policy in the United States.

To raise interest rates in the United States recently, in light of stiffness recovery of the US economy overshadowed the prospects for global economic growth, especially with the legacy of increase in the value of the US dollar, which threatens the growth rates of the global economy modest given the location of the dollar in the global balance of trade. In contrast, central banks continue in many of the developed economies, the adoption of the quantitative easing policy (to ease monetary policy), reflecting further monetary easing policy in the euro area and Japan on a large scale as expected. In general, monetary conditions in advanced economies are still highly concessional order to further economic and fiscal stimulus during the current year.

The updated forecasts of the International Monetary Fund.

Recently were known IMF forecast a clear divergence in global economic growth map, and despite faltering many leading economic activity economies, now that development scene will be mixed clearly.

1. ​​advanced economies,

the IMF forecast high growth rates in advanced economies by 0.2 percentage points in 2016 to reach 2.1%, and to continue steadily in 2017 and remains a total activity retains Beslapth in the United States, supported by financial conditions that remain soft and the conditions of the housing and labor markets ever-improving, but the dollar's strength in global markets may receive burthens on manufacturing activity, as lower oil prices will reduce investment in structures and equipment used in the mining sector. In the euro zone, private consumption could rise with support from lower oil prices and facilitated financial conditions, which offset the decline in net exports. It is also expected that the enhanced growth in Japan this year, according to public financial support, and lower oil prices, financial conditions accommodative adopted from the presence of the Japanese central bank and rising income levels.

2-economies of emerging markets and developing economies.

Expects high growth rates in the economies of emerging markets and developing economies than 4% in the past year - the lowest rate since World-financial crisis to 4.3% and 4.7% during the years 2016 and 2017. According to IMF data, this slowdown in the rate of increase in the result of growth:

(A) Decline in economic growth rates in China to 6.3% this year and 6% next year, due to weak investment growth rates, as the Chinese economy continues to bounce back slowly. The outlook is generally on India and the rest of Asia emerging that it will continue to grow strong rates, although there are some countries that will face the adverse effects caused by the structural transformation of the Chinese economy and the weakness of the manufacturing industry in the world.

(B) Indicate the current expectations of the Fund on Latin America to a contraction of Total gross domestic product in the current year, albeit at a lower rate than in 2015 despite positive growth in most countries in the region. This is due to the economic recession that affected Brazil and a number of countries in economic distress.

(C) Although the fund expectations of higher rates of economic growth in general in the Middle East, but the price of oil degradation and continuing to fluctuate, as well as geopolitical tensions and internal conflicts in some countries, will be a factor negative on the outlook for growth and economic stability and the future financial in the region.

(D) It is expected that emerging Europe to achieve sustained growth on a large scale, and recorded some slowdown in the current year, as the Fund's forecasts indicate that the survival of the Russian economy under the weight of recession during the current year because of the ongoing adjustment Russia, with the drop in oil prices and Western sanctions. The other economies in the Commonwealth of Independent States Wegervha well as the recession and geopolitical tensions stream in Russia, and are affected in some cases paths internal structural weaknesses and the prices low oil; it is expected to achieve expanded slightly in growth during the current year and to speed up the pace in the next year.

(E) according to expectations Fund most African countries could see a gradual recovery in economic growth rates, but will not exceed that growth rates achieved over the past decade, in the context of low commodity prices. This is mainly due to the continuous adaptation to lower oil prices and higher borrowing costs, placing a heavy burden on some of the largest economies in the region), Angola, Nigeria and South Africa (as well as a number of preliminary and smaller exporting countries for goods mainly.

What do you mean the fund oil countries expectations?

It does not disclose data and expectations of the International Monetary Fund recently issued by a significant improvement of the economic growth rates for the current year and next, which reduces the chances of increasing global demand for crude oil rates during the current year, which need to be exporting crude oil countries (from inside and outside OPEC) to guide the compass again about quotas through new agreements for the production rates and set the tone for oil supplies and reduce the glut of oil supply to restore oil prices to equilibrium levels. Especially as the fall in oil prices over the past years has not been reflected in the global economy recovers as expected. It is also imperative to oil countries do more to adapt to the scarcity of oil revenues and the implementation of a package of financial and economic reforms, to absorb the momentum of the oil shock and preparedness efforts for more volatility and structural shifts in the global energy market. As well as the financial reorganization and break away from the model of public spending to growth and economic stability in favor of the involvement of the private sector in the development and recruitment process.

(*) Researcher at the Center for Strategic Studies and assistant professor at the Faculty of Economics at the University of Karbala