This Week's Focus: Too slow for too long

This Week's Focus: Too slow for too long

Anchor

That is how the IMF in its latest publication known this week the state of growth of the world economy. According to the provisions of this international organization, economic growth in 2016 will be about 3.2%, 0.2% less than its previous estimate. However, it notes that this rate of increase will be higher than in 2015, so that the situation of economy improving but still facing adverse forces.

The IMF highlights some of the risks that could further decrease this growth forecast for 2017 would increase.

Economic Risks

Among the economic risks, the return of financial turmoil that would damage confidence and demand. Despite the recent rebound in asset prices, financial conditions in the United States, Europe and Japan have followed a restrictive trend since mid 2014. The recent episodes of volatility are a sample of what could happen again.

The increase in net capital outflows from emerging markets could trigger further depreciation of their currencies, which could eventually impact negatively on the balance, generating even more imbalances.

China, which has become the world's largest in terms of purchasing power parity economy is in the midst of a transition to more sustainable growth based on consumption and services. Although this process will be beneficial, given the important role of China in world trade, the bumps in the road could lead to substantial contagion effects, especially in emerging market economies and developing countries.

The persistent and slow growth reduces potential output, consumption and investment. The downward revisions to the economic outlook have suffered consecutively to the risk that the growth rate of the world economy stagnates, and the global economy from falling into a widespread secular stagnation.

Investment in infrastructure is needed in different countries, and environment of real interest rates at very low levels should be an incentive. Countries that have fiscal space should not expect to take advantage of the situation.

Other non-economic Risks

In both the United States and Europe, the political debate reflects growing income inequality and structural changes, some of them related to globalization, which is considered to have favored economic elites and others have left behind. Another factor is the fear of terrorism.

In the UK, the referendum scheduled for June on membership of the European Union has already sown uncertainty among investors; UK output (the so-called "Brexit") could cause serious damage to regional or global scale by disrupting trade relations already established.

A political tensions in Europe tragedy of the massive influx of refugees, especially in the Middle East adds. Obviously, a significant proportion of refugee flows is the result of violent extremism and sectarian strife, population displacements but also have natural causes, some of them linked to climate change.

Despite all this, the IMF hopes that countries cooperate to take measures to reduce the occurrence of these risks and to improve economic expectations in the short term.