IMF slashes 2013-14 global growth forecasts

 

The Washington-based crisis lender revised its growth estimate forthis year's world output to what would be a four-year low of 2.9 percent, from a July forecast of 3.2 per cent. The 2014 global forecast was trimmed by 0.2 percentage points to 3.6 per cent.

"The major news ... comes from emerging markets, where growth has declined - often more than we had forecast in July," IMF chief economist Olivier Blanchard said.

Growth figures for the still-anaemic advanced economies were mostly little changed. But growth in emerging and developing economies as a group was seen as significantly slower, projected at4.5-per-cent growth for this year, down from 5 per cent three months ago.

For 2014, the IMF lowered its growth outlook for the group by 0.4 percentage points to 5.1 per cent.

The most dramatic slowdowns were in India, off 1.8 percentage points to 3.8 per cent growth; Mexico, off 1.7 points to 1.2 percent; Russia, off 1.0 point to 1.5 per cent; and the Middle East and North Africa region, off 0.9 points to 2.1 per cent.

Despite some slowing, low-income countries "continue in general to be quite resilient and achieve fairly high growth," Blanchard said.

The IMF projected that China, the world's second-largest economy, would see growth of 7.6 per cent in 2013, a dip of 0.2 percentage points from previous forecasts, and pared the forecast for next year by 0.4 percentage points to 7.3 per cent.

"China and a growing number of emerging market economies are coming off cyclical peaks," the IMF said in its World Economic Outlook. "Their growth rates are projected to remain much above those of the advanced economies, but below the elevated levels seen in recent years." IMF forecasts were unchanged for the club of advanced economies -North America, Europe and Japan - with growth of 1.2 per cent this year and 2 per cent in 2014.

"These are the economies which were sick, and therefore it is very important that recovery is, looking forward, going to be a bit stronger," Blanchard said.

The euro zone was "crawling out of recession but ... forecast to stay tepid," the IMF said. The economy there was seen as contracting0.4 per cent this year, with a 2014 return to growth, at a rate of 1per cent.

The IMF saw Italy and Spain, the hardest-hit of Europe's larger economies, enjoying fractional expansions in 2014, after years of shrinking output.

"Taking the longer view, just as for Japan, structural reforms are urgently needed to invigorate the anaemic potential growth rates that plague the (euro) region," Blanchard wrote.

Japanese growth, spurred by government stimulus spending, was set to reach 2 per cent this year, but dip to 1.2 per cent in 2014, with growing pressure to address the country's debt, which has reached 200per cent of gross domestic product, the highest recorded anywhere.

The IMF predicted that the United States would grow at a rate of1.6 per cent in 2013, quickening to 2.6 per cent next year. Blanchard warned of "some volatility" in long-term interest rates around the world as the rate-setting US Federal Reserve begins long-anticipated tightening after years of unprecedented slack monetary policy.

The Fed is widely expected to soon reduce its pace of government bond-buying, which has been pumping 85 billion dollars a month into financial markets.

Blanchard said his "working assumption" was that the central bank's benchmark interest rate, at a never-before-seen near-zero since December 2008, will not be raised before 2016. The Fed faces "new and delicate" problems to communicate its plans with a minimum of market disruption.