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IMF's latest World Economic Outlook warns of threats to the global economy | IMF's latest World Economic Outlook warns of threats to the global economy |
(about 7 hours later) | |
A gathering storm of political turmoil, a stalling eurozone and complacency in financial markets is posing a new threat to the global economy, the International Monetary Fund warned yesterday. | A gathering storm of political turmoil, a stalling eurozone and complacency in financial markets is posing a new threat to the global economy, the International Monetary Fund warned yesterday. |
The IMF’s latest World Economic Outlook had good news for the UK – forecast to be the world’s fastest-growing, advanced economy this year at 3.2 per cent – but slashed estimates for Europe’s biggest countries as well as Japan. | The IMF’s latest World Economic Outlook had good news for the UK – forecast to be the world’s fastest-growing, advanced economy this year at 3.2 per cent – but slashed estimates for Europe’s biggest countries as well as Japan. |
The IMF trimmed global forecasts by 0.1 per cent to 3.3 per cent this year and its chief economist, Olivier Blanchard, admitted the recovery was “weak and uneven”. | The IMF trimmed global forecasts by 0.1 per cent to 3.3 per cent this year and its chief economist, Olivier Blanchard, admitted the recovery was “weak and uneven”. |
He warned that a sustained period of low interest rates in the UK and elsewhere had driven a search for returns, meaning that “financial markets may be too complacent about the future”. | He warned that a sustained period of low interest rates in the UK and elsewhere had driven a search for returns, meaning that “financial markets may be too complacent about the future”. |
War in the Ukraine and upheaval in the Middle East has not hit energy prices so far – oil prices have fallen by 20 per cent since their recent June high – but “the risk that they do so in future is there”, Mr Blanchard added. | War in the Ukraine and upheaval in the Middle East has not hit energy prices so far – oil prices have fallen by 20 per cent since their recent June high – but “the risk that they do so in future is there”, Mr Blanchard added. |
In the eurozone, meanwhile, the economist flagged up the risk of a descent into outright deflation, which would “clearly be the major issue confronting the world economy”. | In the eurozone, meanwhile, the economist flagged up the risk of a descent into outright deflation, which would “clearly be the major issue confronting the world economy”. |
The European Central Bank’s president, Mario Draghi, has slashed its main interest rate, cut bank-deposit rates into negative territory and pumped billions of euros into financial markets. | |
But the IMF still puts the chances of a new eurozone recession at around one in three, and pressed the case for a major programme of infrastructure investment across the region to spur growth, as advanced economies also wrestle against the longer-term problems of ageing populations and low productivity. | |
Growth in the eurozone will be just 0.8 per cent this year, down from 1.1 per cent mooted in July. Next year, the single-currency zone is expected to manage an advance of just 1.3 per cent. | |
Japan has been hit by a rise in VAT, prompting the IMF to slash forecasts for the world’s third-biggest economy this year and next – to 0.9 and 0.8 per cent respectively. | |
Despite the UK’s brighter growth prospects, the body also sounded a warning on lingering risks from housing and mortgage markets. | |
Mr Blanchard – who previously accused the Chancellor of “playing with fire” on austerity policies – said the “US and the UK in particular are leaving the financial crisis behind”. | |
But the outlook also warned: “The UK… faces financial stability risks arising from housing and mortgage markets.” | |
In June, the Bank of England introduced limits on high loan-to-income home loans mortgages to prevent borrowers over-extending themselves, while tighter mortgage lending criteria are slowing runaway prices. | In June, the Bank of England introduced limits on high loan-to-income home loans mortgages to prevent borrowers over-extending themselves, while tighter mortgage lending criteria are slowing runaway prices. |
The Bank’s latest credit-conditions survey found a “significant” fall in the availability of home loans in the past three months after eight-successive quarters of growth in the market. | The Bank’s latest credit-conditions survey found a “significant” fall in the availability of home loans in the past three months after eight-successive quarters of growth in the market. |
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