The IMF is projecting global growth of 3.1% for 2015, compared with 3.4% in 2014. The forecast is down 20 basis points from the 3.3% prediction made in July.

The agency said that prospects remain uneven across the main countries and regions. Recovery in advanced economies is said to improve slightly while activity in emerging markets and developing economies is expected to slow for the fifth year in a row, reflecting weaker prospects for some emerging market economies and oil-exporting countries.

Financial market volatility, declining commodity prices, reduced capital flows and pressure on emerging market currencies have led to an increased downside risk, says the IMF. “Financial market volatility spiked in August, following the depreciation of the renminbi, with an increase in global risk aversion, weakening currencies for many emerging markets, and a sharp correction in equity prices worldwide.”

Financial Factors 

The modest recovery experienced in advanced economies and declines in emerging markets are attributed to a number of factors. Legacies from the financial crash, including high debts, a weakened financial sector and low investment, continue to affect advanced economies, while emerging markets continue to adjust to the post-crisis credit and investment boom.

In Association with

Commodity prices have weakened as a result of lessened demand. Oil prices have declined since the spring, and metal prices have fallen following concerns about demand, the slowdown of China’s manufacturing sector and increased supply as a result of the previous mining boom.

Weakened commodity prices have led to currency depreciation. Countries with weakened growth prospects and terms of trade face currency depreciation as part of a global adjustment, the IMF believes..

The IMF says financial conditions for emerging markets have tightened since the spring, and particularly in recent weeks. Stock prices are weaker, exchange rates have depreciated and dollar bond spreads and long-term local currency bond yields have increased by an average of 50-60 points.

In the euro area, addressing remaining sovereign and banking vulnerabilities is still a challenge. The euro zone needs to strengthen the currency to increase market and business confidence.