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Issuing a warning, the IMF said the dual threat could undermine what is already an uneven and weaker recovery than had been expected.
The warning comes as part of a report prepared by the IMF which will be put in front of the G20 finance ministers and central bank governors in Australia this weekend. The report also discusses problems in the US economy and the eurozone. Together with challenges facing the economies of China, Japan, Latin America and Russia, the IMF said the growth target of 3.6% for this year will not be achieved.
However, looking ahead to next year, the Washington-based body said that the rate of growth should pick up. Citing the long-term low interest rates across the world, supportive measures introduced by central banks and the steady increase in share prices, the global prospects and challenges said that there will be a number of key contributing factors to the growth increase.
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This better news was itself tempered however. The IMF went on to say that further new threats could be on the horizon, causing further disruption and an unsettled atmosphere in investment markets.
The other threats it sees approaching are:
• Low inflation
• Permanent growth rate slowdown in the west
• Lower growth in emerging economies
• Potential disruption as a result of the US Federal Reserve raising interest rates
Analysing individual economies across the world, the IMF paper continued to say that it expects the US economy to perform best next year. It also said that the growth forecasts in the UK should remain ‘solid’. The same is true of growth forecasts for many developed Asian markets, as well as the economies of Australia and Canada.
However, it went on to say that the eurozone will continue to see an ‘uneven’ and ‘more gradual’ recovery, despite recent measures to stimulate activity by the European Central Bank.
Though backing the US and the UK, the IMF went on to advise Washington and London policymakers to prepare to remove their stimulation efforts that have been in place for over five years.