International Monetary Fund’s Forecast for Global Economy Cools
Even as experts are signaling caution in their outlook for the automotive sector, the International Monetary Fund (IMF) is lowering its forecast of economic growth for this year.
In its April 2016 report, the IMF reduced its January 2016 projection of global economic growth from 3.4% to 3.2%, citing a variety of risk factors that the IMF sees as becoming more likely, such as:
- potential financial instability in emerging markets and in China in particular,
- the effect of low oil prices on oil exporting nations,
- a reduction in consumer demand flowing from the poor performance in equity markets in late 2015 and early 2016,
- geopolitical conflict and terrorism,
- and Britain’s looming vote on a potential exit from the EU.
The report also mentions factors that have particular impacts on the manufacturing sector, as China’s growth is now buoyed more by gains in the service sector than in manufacturing, and a strong U.S. dollar puts pressure on U.S. manufacturing. Depressed commodity prices have also led to weaker investment in countries that depend on commodity extraction and exports, and in turn a “weakness in global manufacturing activity and trade.”
While not a cause for panic, the report indicates that there may be some headwinds for further growth in the automotive industry, particularly as markets that have become important drivers of growth for the industry, such as China, are facing a potential leveling-off. As manufacturers prepare for the coming months and years, they should carefully monitor the risk factors identified in the IMF report to determine how those factors will impact consumer demand.