Lima: The International Monetary Fund (IMF) cut its global growth forecasts for a second time this year on Tuesday, citing weak commodity prices and the slowdown in China, and warned that policies aimed at increasing demand were needed.
The IMF, whose three-day annual meeting starts in the Peruvian capital tomorrow, forecast the world economy would grow by 3.1% this year and 3.6% next year -- both new forecasts are 0.2 percentage points below its July projection and 0.4 and 0.2 percentage points below its April outlook, respectively.
The downgrades come after central banks in major industrial economies cut rates to near zero and spent US$7 trillion in quantitative easing programmes in the seven years since the global financial crisis.
Despite those measures, investment, growth and productivity are stuck below pre-crisis levels, and there is a lack of consumer demand.
Among the major economies, the US is expected to grow by 2.6% this year and 2.8% next year, the euro zone 1.5% and 1.6% and Japan 0.6% and 1%.
The IMF sees growth in China slowing to 6.8% this year and 6.3% in 2016.
The biggest hit to growth will come in emerging economies, where the IMF cut its growth forecast to 4% in 2015 due to a sharp slide in commodity prices.
"The distribution of risks to global growth remains tilted to the downside," the IMF said in its World Economic Outlook report.
"Downside risks to growth for emerging-market and developing economies have increased, given the risks to China's growth transition, more protracted commodity market rebalancing, increased foreign exposure of corporate balance sheets and capital-flow reversals associated with disruptive asset price shifts."
The IMF expects the US Federal Reserve will start raising rates this year, although it expects the Fed will stay its hand until it sees signs of inflation rising towards its 2% target.
The Fed was criticised for failing to communicate effectively at last month's rate meeting after comments prior to the event indicated lift-off from zero rates was possible. Markets are now pricing in a first move next March.
Greater transparency by the Fed would ease possible disruptions to other economies, particularly emerging markets, which are more vulnerable to changes in US policy. The IMF has also warned the Fed not to raise rates prematurely.
"Regardless of the timing of the initial policy move, the data would suggest that the subsequent rate increases should be gradual," the report said.
Nonetheless, inflation remains well below target, while market-based expectations show it is expected to remain below the Fed's target for a considerable time.
The US core consumer price index (CPI), which strips out food and energy costs, ticked up just 0.1% year-on-year in August, reflecting a stronger dollar.
In the 12 months through August, the core CPI increased by 1.8% year-on-year, the fifth time in six months that the 12-month change was 1.8%.
Both Japan and the European Central Bank are seen as ready to undertake more quantitative easing, which helped to stave off a banking collapse but has so far failed to boost demand.
The IMF stressed monetary policy alone would not reignite global growth.
Pimonwan Mahujchariyawong, deputy managing director of Kasikorn Research Center (KResearch), said the IMF's downward revisions painted a gloomy picture for the world, reflecting how exports are continuing to decline worldwide.
But she said the IMF's view was in line with that of KResearch -- the Chinese economic slowdown and prolonged low commodity prices will affect commodity exporters such as Australia and those located in the Middle East and South America.
"The only country projected to record a stronger recovery is the US, so high hopes cannot be expected in terms of [Thai] exports going to foreign countries," Ms Pimonwan said.
KResearch forecasts Thai economic growth next year within a range of 2.5% to 3.5%, while exports will expand by 2% in dollar terms.
Regarding the Bank of Japan's decision to hold off further expansion of its monetary stimulus measures and the effect of that decision on foreign direct investment (FDI) by Japanese businesses, Ms Pimonwan said Japanese investors would assess the outlook for global economic recovery.
Japanese FDI is not expected to increase significantly if the global economic slowdown is protracted.
"[Japanese] businesses could expand their investment in certain sectors if they think those business segments can record tangible growth," Ms Pimonwan added.