Facing Three Major Issues, IMF cuts the Global Economy Projection

Penulis: Yura Syahrul

Editor: Yura Syahrul

21/1/2016, 13.32 WIB

Currently, the greatest risk lies with the emerging market and developing countries, which really need to be careful and create policies to invent new sources of economic growth.

Pertumbuhan Ekonomi
Donang Wahyu|KATADATA

KATADATA - The International Monetary Fund (IMF) has cut the projection of the global economic growth in the next two years, because the global economy is experiencing an adjustment due to three major issues that can create negative impact. 

IMF is observing the risk of economic slow down that occurs in emerging market and developing countries, which can result in hampering the recovery of global economic condition. This will only make the world to face three major problems. First, China’s economic slow down amid the transition to the economic growth model that focus more towards the consumption and services sectors in the future. This can create a great chain reaction towards other nations because all this time China is the consumer of commodities, and the largest trading country for several emerging market countries. 

Second, the effect of China’s decision will slow down the economic growth of the emerging market and developing countries, which was the leaders in terms of global economic growth when the US and European economies are weakening. The emerging market countries are also hit by the plunging commodity prices.

Third, there is the policy of the Federal Reserve that has abandoned the regime of zero percent interest since the end of last year. This policy will only strengthen the US dollar and tighten global funding. As the result, the financial condition of many companies will be pressurized, which eventually will affect the economy in each country. 

In its quarterly report with a theme “World Economic Outlook Update”, which was issued last Tuesday (January 19), IMF predicted that the global economic growth this year would stand at 3.4 percent. And IMF predicted that the growth next year would be also be at 3.6 percent, lower than the initial projection, which was 3.8 percent. 

The predictions are based on IMF mapping that the global economic growth will still be weak and uneven in all nations of the world. Also, there is a greater risk that shadows the emerging market countries. The economics of the developed countries have started to recover, which is marked by the projection of economic growth that stands at 2.1 percent, and stable until next year, in those countries. The financial condition of the United States (US) has also become better to support the household and workers sectors; while in Europe, the private sector consumption is now better thanks to the plunging oil price. The same thing also occurs in Japan. 

On the contrary, IMF sees that the emerging market and developing countries will face a slow down in their respective economies. IMF predicted that the economic growth of these countries this year and the next will be at 4.3 percent and 4.7 percent, respectively; lower by 200 basis points from the initial projection. 

The majority of the emerging market and developing countries are experiencing a slow down in their economies. In Asia, China’s economic growth this year is predicted to be at 6.3 percent, which is lower than last year (6.9 percent). And the economic condition in five ASEAN countries, including Indonesia, it is predicted that the growth will be at 4.8 percent or lower than the initial projection, which was at 4.9 percent. Russia and Brazil are still experiencing crisis. IMF predicted that only India that shows her economic power by having a growth of 7.5 percent this year. 

Regarding the slow down of economic growth in the emerging markets and developing countries, IMF suggests the governments in their respective countries to make policies in order to seek new source of growth. This is the only way to lift up the economic condition during this hard time. These countries can also perform a structural reformation to remove infrastructure development jam, to facilitate a more dynamic business environment, and to increase the human resources.

Reporter: Yura Syahrul

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