IMF sees long period of low economic growth

April 08, 2015 08:29
Other wealthy economies will suffer the secular stagnation that has afflicted Japan for years, the IMF predicts. Photo: AFP

The International Monetary Fund is warning of a prolonged period of lower economic growth rates in most of the world’s leading economies.

As a result, governments and companies will find it more difficult to reduce their debt levels, the IMF said.

The findings, included in the IMF’s twice-yearly World Economic Outlook, show living standards — especially in the developing world — could grow more slowly than they did before 2008, the Financial Times reported.

They also show that the global financial crisis that began that year was worse than previous episodes of turmoil and could have permanently lowered the rate at which economies can expand.

The IMF says the slowdown in the growth of output consistent with stable inflation has roots going back beyond the 2008 slump.

These include an aging population and a slowdown in the rate of productivity growth in emerging markets.

There could be a sharp contraction in the growth of potential output in China as the country tries to rebalance its economy away from investment and toward consumption.

Growth in potential output in wealthy economies will be 1.6 per cent a year between this year and 2020, the IMF forecasts.

This is marginally higher than the rate of expansion in the past seven years but significantly lower than growth rates before the slump, when potential output expanded at 2.25 per cent a year.

In emerging markets, growth in potential output is forecast to slow from 6.5 per cent a year between 2008 and 2014 to 5.2 per cent in the next five years.

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