IMF lowers global forecast but steady China prediction bodes well for Australia
/The International Monetary Fund (IMF) is downgrading its forecasts for the second time this year, but the good news for Australia is that its China outlook is steady.
It is now seven years since the collapse of the Lehman Brothers investment bank sparked the global financial crisis.
While the slow economic recovery in the United States is starting to take hold, the focus is firmly on the slowdown in China and tumbling commodity prices.
The IMF's chief economist Maurice Obstfeld says the fallout is pushing global economic growth to its lowest level since 2009, straight after the Lehman Brothers meltdown.
"Near term growth remains moderate and uneven. We see higher downside risks than we saw at the time of our last July update of our forecasts," he lamented.
"The holy grail of robust and synchronised global expansion remains elusive."
The IMF now sees the global economy growing by 3.1 per cent in 2015 – that is down from its July forecast of 3.3 per cent.
The outlook for Australia is more positive - with growth forecast at 2.4 per cent in 2015, slightly lower than the previous outlook and forecasts by Treasury and the Reserve Bank.
However, like the resource economies of Canada and Brazil, Australia remains exposed to China, with the iron ore price now at $US54 a tonne, down from more than $US80 this time last year.
While Australia's treasury coffers are hurting from the falling demand out of China, emerging economies are hurting even more, according to the Dr Obstfeld.
"Commodity price falls are having their most intense effects there, and these countries of course are more than half of world GDP and the lion's share of GDP growth," he observed.
"2015 is projected to be the fifth straight year in which emerging and low-income growth declines.
"What happens in China has repercussions for the entire world economy."
The good news is that, despite the recent slowdown in China and the resulting bust in commodity prices, the IMF is standing firm on its outlook for the world's second biggest economy, forecasting growth this year of 6.8 per cent and 6.3 per cent in 2016.
However, any unexpected slowing beyond that point will have a direct impact on Australia warned Michael McCarthy, chief strategist at CMC Markets.
"We're seeing conflicting data out of China, official data suggesting that the official target is being met, some unofficial numbers suggesting that growth is much lower, and even further numbers suggesting that what's happening in China is a slowdown of the value of trade because of lower prices, not a slowdown in the volume," he said.
"With so many conflicting views, I don't think the IMF standing pat has helped the situation at all."
Australia's future growth lies beyond commodities: analyst
Mr McCarthy said that, even though there are some early signs that commodity prices may have reached a trough, the sector is unlikely to contribute to Australia's economic growth again for some time.
"There is evidence from commodity markets that prices there are stabilising, that we may have seen the lows for important commodities like oil and like iron ore," he said.
"However given the significant force we've seen in those prices, that's not necessarily a positive and the opportunities for Australia over the medium to long term remain in the services sector: in education, in finance and in tourism, rather than necessarily in the next commodity cycle."
Another inescapable factor shaping, or reshaping, the global economy is the flood of asylum seekers and migrants flowing into Europe, fleeing the crisis in and around Syria.
"The refugee crisis is of course a huge humanitarian tragedy and it's a crisis in which all countries have to cooperate to reach a solution," said the IMF's Dr Obstfeld.
"In all countries there's going to be a challenge of integrating new arrivals into the labour force. That will take time, but eventually it will be positive for growth in Europe."
Also on the IMF's radar is how the global slowdown and concerns about China might change the timetable for an interest rate rise in the United States.
While the IMF sees a rate rise as inevitable, the US Federal Reserve cited weakness around the world, especially in China, when it decided last month to keep short term rates near zero - where they have been since December 2008.