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IMF tweaks key outlooks, leaves world forecast alone

The International Monetary Fund (IMF) kept its growth forecasts for the world economy unchanged for this year and next while revising its projections on key economies, with forecasts for China and the eurozone upgraded and expectations for US growth dialled back.

In its updated World Economic Outlook (WEO), released yesterday in Kuala Lumpur, the IMF projected that global GDP would grow by 3.5 percent in 2017 and 3.6 percent in 2018. The projections maintain those of the IMF’s last WEO in April, reflecting increased confidence that the global economy is on track to accelerate.

“The recovery in global growth that we projected in April is on a firmer footing [and] there is now no question mark over the world economy’s gain in momentum,” IMF economic counsellor Maurice Obstfeld told reporters. “Recent data point to the broadest synchronised upswing the world economy has experienced in the last decade.”

He said while the IMF had maintained its global growth projections, the distribution had changed.

China’s growth forecast was revised upwards to reflect strong first quarter 2017 performance and expectations of continued fiscal support, the IMF said in its report. Growth projections were also revised positively for the eurozone after first quarter growth exceeded expectations and indicators showed stronger momentum in domestic demand than previously anticipated.

By contrast, US growth projections were revised down on weaker than expected growth outturn in the first quarter of the year and diminished certainty of fiscal policy changes.

“The major factor behind the growth revision, especially for 2018, is the assumption that fiscal policy will be less expansionary than previously assumed, given the uncertainty about the timing and nature of US fiscal policy changes,” the report said.

While the IMF’s growth outlook was generally positive, its WEO update noted several threats to the global economy that could derail momentum.

“While risks around the global growth forecast appear broadly balanced in the near term, they remain skewed to the downside over the medium term,” it said.

The IMF expressed concern that protracted policy uncertainty linked to US fiscal policies, post-Brexit arrangements or geopolitical risks could trigger a “correction” in rich equity valuations and increase volatility. It also warned that if China fails to address financial sector risks and curb excessive credit growth it “could result in an abrupt growth slowdown, with adverse spillovers to other countries through trade, commodity price and confidence channels”.

While the WEO update did not provide any projections for the Cambodian economy, Ranil Salgado, IMF assistant director of Asia and Pacific, said separately that the Kingdom’s real GDP growth “is expected to remain robust this year, with moderating private investment offset by higher public spending and continued garment exports growth”.

He said there were signs that credit growth was cooling, in part due to policy measures, reducing some of the risk that the IMF previously identified as a threat to financial stability.

According to Salgado, higher food and energy prices nudged headline inflation up to 4 percent year-on-year as of the first quarter 2017, while foreign reserves continued to grow on the back of a lower account deficit and strong FDI flows.

Increased government spending resulted in the fiscal deficit nearly doubling last year to 2.8 percent of GDP, from 1.6 percent in 2015. However, the Cambodian government has also stepped up tax collection to help offset increased expenditure.

“Continued implementation of the revenue mobilisation strategy, coupled with robust growth and administrative efforts, including increased compliance and collection of debt arrears, has seen tax revenues jump from around 10 percent of GDP to 14.7 percent in 2016,” Salgado said.

An IMF mission is currently visiting Cambodia to conduct its annual Article IV consultation.

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