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Global economy to grow by 3.5 per cent

19 April 2017
Global economy to grow by 3.5 per cent

The early strength in Canadian economic data early this year "bodes well" for the country's growth prospects, the International Monetary Fund said Tuesday.

"In India, the growth forecast for 2017 has been trimmed by 0.4 percentage point to 7.2 per cent, primarily because of the temporary negative consumption shock induced by cash shortages and payment disruptions from the recent currency exchange initiative", the International Monetary Fund said in its latest World Economic Outlook report.

In Asia, another dose of government stimulus has pushed China's growth forecast up a tenth of a percentage point to 6.6%, and the fund lifted Japan's outlook by 0.4 percentage point to 1.2%.

However, Obstfeld noted, a number of countries will continue to struggle as a result of low commodity prices, extreme weather or unrest.

When presenting his forecasts, IMF Chief Economist Maurice Obstfeld said that protectionism and a race to the bottom in financial regulation (another fear concerning the United States' new line) "would be worse for everybody".

The IMF thinks there will be 1.7 percent growth this year in the region, unchanged from last year's performance and easing to 1.6 percent in 2018. Its 2018 prediction was for 6.2 percent growth, up two tenths.

In an interview with the Leading European Newspapers Alliance, IMF Managing Director Christine Lagarde said that in the long run it makes sense for the Greek primary budget surplus to amount to 1.5 percent of GDP, contrary to the German view in favor of a 3.5 percent primary surplus.

The IMF upgraded its estimate for China's 2017 growth to 6.6 percent from 6.5 percent, which it made in January.

One bright spot however is gas-rich Qatar which is expected to register 3.4-percent growth this year, compared with 2.7 percent in 2016.

"Whether the current momentum will be sustained remains a question mark", Obstfeld explained. "How can countries safeguard and nurture the global recovery?" he said.

Trump campaigned on an "America First" trade policy, vowing to brand China a currency manipulator and to renegotiate - or tear up - the North American Free Trade Agreement with Canada and Mexico.

While the Netherlands rejected such an approach earlier this year, the same feelings are thought to have helped drive the UK's Brexit vote and U.S. president Donald Trump's ascension to the Oval Office. They include "the threat of deepening geopolitical tensions", the possibility that rising USA interest rates will squeeze economic growth and rattle financial markets and the threat that protectionist measures will damage global trade. "On the other hand, the world economy still faces headwinds", Obstfeld said.

But the IMF, Germany and other nations are anxious that overly-aggressive actions by the US could spark a tit-for-tat trade war that stalls global growth.

The IMF said stronger growth is being fueled by a "long-awaited" recovery in investment, manufacturing and trade. Qatar will post 3.4 per cent growth in 2017 and 2.8 per cent in 2018.

Economic growth in China, the world's second largest economy, has also come at a cost of an unprecedented credit buildup that many economists warn could mean much weaker growth ahead and even financial turmoil.