Warning of “great challenges” this year for the world economy, the International Monetary Fund on Tuesday downgraded its forecast for global growth.
The economy worldwide would expand 3.4% this year and 3.6% next year, the organization said. Both figures would be improvements over 2015’s 3.1% growth.
But the forecasts in the IMF’s quarterly world economic outlook were down from October projections of 3.6% growth this year and 3.8% next year.
“This coming year is going to be a year of great challenges, and policymakers should be thinking about short-term resilience and the ways they can bolster it, but also about the longer-term growth prospects,” said Maurice Obstfeld, the IMF’s economic counselor.
The U.S. economy is projected to grow by 2.6% this year and next year, down from October projections of 2.8%. Growth last year was 2.5%, the IMF estimated.
Underscoring the IMF’s concerns, China reported Tuesday that its economy expanded 6.9% last year. That was down from 7.3% in 2014 and the slowest pace since 1990.
The figure from China’s National Bureau of Statistics was in line with estimates and the government’s target of about 7% growth.
Although there is skepticism about the reliability of China’s official economic data, the report boosted financial markets because there was a fear the government’s number would be lower given the signs in recent months of a steeper slowdown.
The Dow Jones industrial average was up about 85 points, or 0.5%, in early trading Tuesday. The Standard & Poor’s 500 and Nasdaq indexes also were up about 0.5%.
“The long-term reasons for China’s weaker growth have not substantially changed — a slow grind of old industries and excess investment,” said Brian Jackson, a China economist at IHS Global Insight.
IHS forecasts China’s economy will expand 6.3% this year as the nation continues to transition from a focus on manufacturing and exports to more domestic consumption, he said.
The IMF also projects 6.3% economic growth in China this year, dropping to 6% next year. Those figures are the same as in the October forecast.
Such a slowdown “could bring more international spillovers through trade, commodity prices and waning confidence,” the IMF said.
A key reason for the IMF’s downgrade in projections for developing economies is a deep recession in Brazil, triggered in part by less demand for its commodities in China.
The IMF said Brazil’s economy would contract 3.5% this year — much worse than forecast in October — after a 3.8% contraction last year.
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