The International Monetary Fund (IMF) has down-graded UK growth forecast for 2017, based on weaker than expected activity in the first quarter of the year.
US growth forecast has also been down-graded from 2.3 per cent to 2.1 percent in 2017 and from 2.5 percent to 2.1 per cent in 2018.
The US figures are in part reflecting the weak growth in the first quarter of the year, but for 2018 due to the assumption that fiscal policy will be less expansionary than previously assumed due to uncertainty about the timing and nature of US fiscal policy changes.
Market expectations of fiscal stimulus have also receded.
Growth projections for 2017 are up for many euro area countries, including France, Germany, Italy, and Spain, where growth for the first quarter of 2017 was generally above expectations.
This, together with positive growth revisions for the last quarter of 2016 and high-frequency indicators for the second quarter of 2017, indicate stronger momentum in domestic demand than previously anticipated.
Emerging and developing economies are projected to see a sustained pickup in activity, with growth rising from 4.3 percent in 2016 to 4.6 percent in 2017 and 4.8 per cent in 2018.
These forecasts reflect upward revisions, relative to April, of 0.2 percentage point for 2016, and 0.1 percentage point for 2017.
Growth is primarily driven by commodity importers, but its pickup reflects to an important extent gradually improving conditions in large commodity exporters that experienced recessions in 2015–16, in many cases caused or exacerbated by declining commodity prices.
China’s growth is expected to remain at 6.7 per cent in 2017 and to decline only modestly in 2018 to 6.4 per cent.
The forecast for 2017 was revised up by 0.1 percentage point, reflecting the stronger than expected growth in the first quarter of the year underpinned by previous policy easing and supply-side reforms (including efforts to reduce excess capacity in the industrial sector).
For 2018, the upward revision of 0.2 percentage mainly reflects an expectation that the authorities will delay the needed fiscal adjustment (especially by maintaining high public investment) to meet the target of doubling 2010 real GDP by 2020. Delay comes at the cost of further large increases in debt, however, so downside risks around this baseline have also increased.
Growth in India is forecast to pick up further in 2017 and 2018.
While activity slowed following the currency exchange initiative, growth for 2016, at 7.1 percent, was higher than anticipated due to strong government spending and data revisions that show stronger momentum in the first part of the year.
With a pickup in global trade and strengthening domestic demand, growth in the ASEAN-5 economies is projected to remain robust at around 5 percent, with generally strong first quarter outturns leading to a slight upward revision for 2017 relative to the April World Economic Outlook.
