The International Monetary Fund said Tuesday that the global economy remains tepid, with slowdowns in emerging markets offsetting progress in the Japanese and European economies.
While the plunge in oil prices has mostly been positive for world output growth, currency and capital market volatility, geopolitical crises and inadequate investment and reform for the future could hold the global economy back, the IMF warned.
In its semi-annual World Economic Outlook, the crisis lender projected the global economy will grow about 3.5 percent this year, barely faster than 3.4 percent in 2014, and pick up pace to 3.8 percent next year.
That was the same as its January predictions, but included an upgrade of prospects for Japan and Europe and a downgrade for the United States.
All three economies are still trying to break clear of the 2008 financial crisis, said IMF chief economist Olivier Blanchard.
"Legacies from both the financial and the euro crises are still visible in many advanced economies," he said.
In addition, advanced economies are suffering from a decline in "potential growth", the result of the weight of an aging society and lower investment in future productive capacities.
"It would be wrong to speak, as some have done, of stagnation, but prospects are more subdued. And more subdued prospects lead, in turn, to lower spending and lower growth today."
The IMF said the United States would remain the driver of world output in 2015 and 2016, even as it trimmed its optimistic US growth forecast in January to 3.1 percent.
But across emerging countries, 2015 will be the fifth year of declining growth. With China slowing -- 6.8 percent this year and 6.3 percent in 2016 -- other countries dependent on selling commodities to the world's second-largest economy will continue to face weak prices.
The same goes for oil exporters, though their main problem is oversupply.
But the IMF said the 50 percent fall in crude prices was not yet generating all the potential benefits of more spending money in consumers' pockets.
On paper, the Fund says, cheaper oil could add as much as one percentage point to global growth by 2016, a huge boost.
But some oil-importing governments are keeping the fiscal benefits for themselves -- cutting subsidies for instance -- and not passing them to consumers.
Moreover, the strong dollar may have eaten into the gains for oil importers with weaker currencies.
- 'Complex forces' -
Despite some bright spots, Blanchard characterized global output growth as "moderate and uneven."
"A number of complex forces are shaping the prospects around the world," he said.
"Legacies of both the financial and the euro area crises -- weak banks and high levels of public, corporate, and household debt -- are still weighing on spending and growth in some countries. Low growth in turn makes deleveraging a slow process."
In the updated IMF outlook, several key countries look worse off than in January:
- The United States, where the 2015 forecast has been chopped to 3.1 percent from 3.6 percent.
- Russia, which faces a contraction of 3.8 percent, compared with 3.0 percent previously.
- Brazil, where the IMF now expects a 1.0 percent contraction this year, rather than slight growth.
Those where the picture looks better:
- Germany, France, and especially Spain, which should grow 2.5 percent this year, up from the previous outlook of 2.0 percent.
- Japan, where central bank stimulus has driven down the yen, boosted wages and pumped up asset prices, should deliver a 1.0 percent expansion in 2015, and 1.2 percent next year, 0.4 point better than the January forecast.
- India has been upgraded by 1.2 percentage points for a 7.5 percent expansion this year and next.
- Mideast, Ukraine, Greek risks -
The IMF was generally positive about China's slowdown as part of a necessary rebalancing to greater domestic consumption but also a reaction to the risk of credit and investment bubbles.
"The Chinese authorities are now expected to put greater weight on reducing vulnerabilities from recent rapid credit and investment growth, and hence the forecast assumes less of a policy response to the underlying moderation," it said.
But the world economy still faces significant risks on the downside, the IMF report said.
One is the continuing turmoil in Ukraine and in the Middle East. A second worry is how vulnerable emerging economies fare in the face of ongoing turmoil in capital and currency markets, including more strengthening of the dollar, due to the tightening of US monetary policy.
More broadly, if Japan and Europe do not pick up speed, the risks of stagnation and low inflation are still present.
"A Greek crisis cannot be ruled out, an event that could unsettle financial markets," said Blanchard.
"An exit from the euro would be extremely costly for Greece, extremely painful," he said.
The rest of the eurozone, he said, "is in a better position situation to deal with a Greek exit. Some of the firewalls which were not there earlier are there."
"It would still not be smooth sailing but it could probably be done."