IMF lowers forecast for global economy

The IMF said it anticipates the global economy would expand by 3.2 percent this year, down 0.2 percentage points from its forecast just three months ago.

And the fund candidly admitted that even that projection could easily prove too optimistic amid upheaval in emerging markets, a slowdown in China, and fraying political and economic ties in Europe.

"The central scenario . . . now looks less likely compared with possible less favorable outcomes," said Maurice Obstfeld, IMF chief economist.

The fund lowered its expectation for growth in almost every country and region in the world.

It downgraded its assessment of the U.S. expansion by 0.2 percentage points, to 1.9 percent. Estimates for Japan were cut in half, to 0.5 percent, while Brazil's economy is now expected to shrink 3.8 percent. The IMF also predicted the slide in oil prices would continue, reducing its forecast of decline by an additional 14 percentage points, to nearly 32 percent.

Notably, however, China's economy is projected to grow slightly faster than previously anticipated this year, up to 6.5 percent from 6.3 percent.

Obstfeld said that reflects the IMF's confidence that new stimulus efforts will help the nation reach its targets for growth.

But he cautioned that longer-term forecasts are dimmer, as China continues to load up on debt and provide support to declining industries.

"We worry about the quality of growth more than the quantity of growth," he said.

The gloomy outlook comes during a period of relative stability in global financial markets following a tumultuous start to the year that echoed the wild swings suffered in summer and early fall 2015. But the IMF warned that the calm could be deceiving.

In June, Britain will hold a historic vote on whether to remain part of the European Union, a decision that will test the limits of the continent's political and economic ties. Obstfeld characterized the potential for a "Brexit" as a "real possibility," one that threatens to unleash a new wave of fear and uncertainty among investors. In addition, he dubbed the flood of Syrian refugees into Europe a "humanitarian disaster" that is fraying already-tense relationships.

Weak economic growth is fueling resentment against open borders and free trade and sparking a rise in nationalistic policies, Obstfeld said.

"The weaker is growth, the greater the chance that the preceding risks, if some materialize, pull the world economy below stalling speed," he said.

The IMF urged central banks to keep stimulating their economies if deflation threatened or growth remained below potential. But it also called on government policymakers across the world to strengthen growth - even as they plan for the worst. The IMF has long advocated infrastructure investment and tax reform to address the former, and said officials should identify what additional levers they could pull if the world slips back into recession.