Recent shifts in exchange rates should help the global economy, boosting Japan and Europe in particular, amid increasing divergence in the growth paths of the world's major economies, the International Monetary Fund said on 14 April.
The Washington-based institution kept its global growth forecasts unchanged, with faster economic expansion in the euro zone and India expected to be offset by diminished prospects in other key emerging markets such as Russia and Brazil.
But it cautioned that the economic recovery remains "moderate and uneven," beset by greater uncertainty and a host of risks, including geopolitical tensions and financial volatility.
In its flagship World Economic Outlook, the IMF kept its forecast for global growth this year at 3.5%. For 2016, the IMF expects global gross domestic product to expand 3.8%, up from the 3.7% it forecast in January.
The headline figures mask a growing split among major economies, in part due to the varying impacts of currency fluctuations and lower oil prices.
"This global number reflects two main evolutions. The first one is an increase in the growth rate of advanced economies from 1.8% last year to 2.4% this year, but it is offset by a decrease in the growth rate in emerging markets in developing economies from 4.6% last year to 4.3% this year. So if I were to characterize what is happening in one sentence I would use the same words as the MD, Managing Director, used last week, which is moderate and uneven," IMF's chief economist Olivier Blanchard said.
The sharp rise of the dollar against the euro and yen is expected to be a major theme at the meeting of the world's top economic policymakers in Washington later this week. The currency moves have exposed some emerging economies as well.
The IMF said monetary policies are driving most of the currency movements, as the US Federal Reserve prepares to raise rates while the European Central Bank and Bank of Japan maintain their monetary stimulus.
The currency effects should boost global GDP, supporting demand in the still-troubled economies of the eurozone and Japan, the IMF said, raising its forecasts for both regions.
The IMF also cut its outlook for the United States, as a 10% appreciation in the dollar over the last six months dragged down net exports. But it said both the United States and China, whose yuan is linked to the dollar, have some policy space to offset the appreciation of their currencies.
The IMF said China, however, could still face a greater economic slowdown as its rebalances away from investment toward consumption-led growth.
The Fund also reiterated that many of the risks it highlighted in October, including geopolitical tensions and disruptive shifts in financial markets, could still derail the sluggish recovery.
In Russia, the fall in the rouble would not offset the negative factors dragging on the country's growth, including financial sanctions and lower oil prices, Blanchard said.
"We are very skeptical," Blanchard said, in response to a question on whether the Fund was underestimating Russia's growth. "Because we think that the Russian economy is subject to many other problems than just that."
The IMF expects Russia's economy to contract 3.8% this year, and 1.1% in 2016.