IMF scales back world growth forecasts for 2013-14

The International Monetary Fund forecast slower global growth for 2013 and 2014, citing expectations of a more protracted recession in Europe and a slowdown in key developing countries such as China and Brazil.

The update of the IMF's World Economic Outlook issued three months ago now projects the world economy will grow at 3.1% this year, the same rate as last year and down from a forecast of 3.3% three months ago. The 2014 forecast was cut to 3.8% from 4.0%.

The IMF said new risks had emerged since April, including the possibility of a more drawn-out slowdown in developing country economies.


Another potential drag on global growth is the possibility that the U.S. will scale back its injections of cash to stimulate the economy in coming months. With markets already anticipating that, the IMF said some developing countries are already feeling the effects in the form of falling share prices and depreciating currencies.

A recession in the 17 countries that use the euro currency is shaping up to be deeper than expected, another factor pulling down the forecast, the IMF said. The eurozone is now expected to contract by 0.6% this year, compared to the April forecast for a 0.4% decline.

The U.S. economy also looks weaker than previously expected, the IMF said, citing tight fiscal and financial conditions.

IMF chief Christine Lagarde has been frequently criticizing the U.S. for cutting government spending, saying it has been slashing too much, too fast. She has blasted the so-called sequester — the automatic across-the-board spending cuts instituted in March because Congress could not agree at that time on a budget and debt deal.

The IMF lowered forecasts for U.S growth to 1.7% in 2013, down from 1.9% in April, and to 2.7% for 2014 down from 2.9%. One reason cited was the sequester remaining in place until 2014, longer than previously projected.

China and Brazil, among the developing countries, saw significant downward revisions. China's 2013 forecast was scaled back to 7.8% compared to 8.1% in April. For 2014, it fell to 7.7% from 8.3%. Brazil was lowered to 2.5% in 2013 from 3.0% in April and 3.2% for 2014 compared to 4.0% previously.

Some developing economies in the Middle East and North Africa are weighed down by difficult political transitions, the report said.

Japan bucked the trend. The IMF revised its 2013 growth forecast up to 2.0% from 1.5% in April.

The IMF advised wealthier countries to take advantage of stronger global growth to restructure their economies and bring debt down to sustainable levels.
Sourche

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