IMF cuts world economic outlook for both this year and next

Tuesday 09 July 2013 18.22
IMF cuts world economic forecast for this year to 3.1% from 3.3%
IMF cuts world economic forecast for this year to 3.1% from 3.3%

The International Monetary Fund has today forecast slower global growth for 2013 and 2014 in an update of its outlook three months ago.

The fund cited expectations of a more protracted recession in Europe and a slowdown in key developing countries such as China and Brazil.

The latest update of the IMF's World Economic Outlook now projects the world economy will grow at 3.1% this year.

This is 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%.

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 US 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 euro zone is shaping up to be deeper than expected, another factor pulling down the forecast, the IMF said. The euro zone is now expected to contract by 0.6% this year, compared to the April forecast for a 0.4% decline.

The US economy also looks weaker than previously expected, the IMF said, citing tight fiscal and financial conditions. IMF chief Christine Lagarde has frequently criticised the US for cutting government spending too much too fast.

The IMF lowered forecasts for US growth to 1.7% in 2013, down from 1.9% in April, and to 2.7% for 2014 down from 2.9%.

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% in April and 3.2% for 2014 compared to 4% previously.

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

But the UK and Japanese economies managed to buck the trend. The IMF is now predicting growth in the UK of 0.9% this year, up by 0.3% since its last report in April when it downgraded the country's prospects.

The move will provide a boost for Chancellor George Osborne's deficit-busting plans as it almost entirely reverses the IMF's earlier growth forecast cuts, which came amid warnings over the impact of austerity.

Japan's growth forecast for 2013 was also revised upwards to 2% from 1.5% in April.

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