Davos Diary: The IMF Sees Dark Clouds Gathering Over the Global Economy

As the World Economic Forum opens, the IMF downgrades its global growth forecast for the next two years.

gettyimages-490679294
gettyimages-490679294

DAVOS, Switzerland - The 2016 World Economic Forum opened to a gloomy start Tuesday, with the International Monetary Fund again warning of modest global growth over the next two years due to China’s economic slowdown, the increase in the cost of borrowing in the United States, and the continuing lag in oil prices.

DAVOS, Switzerland – The 2016 World Economic Forum opened to a gloomy start Tuesday, with the International Monetary Fund again warning of modest global growth over the next two years due to China’s economic slowdown, the increase in the cost of borrowing in the United States, and the continuing lag in oil prices.

Tuesday’s update to the IMF’s October 2015 World Economic Outlook offered a slightly more pessimistic take then the bank did in the fall. It cites a 0.2 percentage point drop from its fall forecast for growth in 2016 and 2017. Now, the emergency lending bank thinks the global economy will expand 3.4 percent in 2016 and 3.6 percent in 2017.

“All in all, there is a lot of uncertainty out there, and I think that contributes to the volatility,” Maurice Obstfeld, the IMF’s economic counsellor and director of research, said in the report. “We may be in for a bumpy ride this year, especially in the emerging and developing world.”

Reason for the IFM’s concern about China were on full display Tuesday. Beijing’s economic growth rate dropped to a 25-year low of 6.9 percent in 2015. Growth in manufacturing in China, one of the key components of its economy, also slowed to 6 percent in 2015, down from 7.3 percent in 2014.

Meanwhile, the price of oil remains less than $30 per barrel, levels crude hasn’t reached in 12 years. Those prices are hammering governments — from Saudi Arabia to Russia to Venezuela — whose budgets for domestic and foreign policy initiatives were set when prices were significantly higher. Many analysts believe that Moscow, for instance, may be struggling to pay the bills for its occupation of Crimea and meddling in Eastern Ukraine. Low oil prices are also seen to have contributed to Qatar’s decision last week  to close Al Jazeera America.

The theme of the annual meeting in Davos is confronting “the fourth industrial revolution,” or the rise of technology and artificial intelligence. But as the conference that brings together the most powerful people in the world of finance begins, the pall of almost $4 trillion in losses on world equity markets to begin 2016 hangs over proceedings.

The forum here in this Swiss ski resort doesn’t officially begin until tomorrow; right now, everyone is busy registering, settling in at sold-out hotels and anticipating a concert tonight from Yo-Yo Ma. But the IMF report makes clear that this year’s World Economic Forum is going to be about a lot more than robots.

Photo Credit: Getty Images

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