Thu, Jul 11, 2013 - Page 15 News List

IMF forecasts slower global growth


The IMF said on Tuesday that it sees slower global growth this year and next year than it did just three months ago, citing expectations of a slowdown in developing countries such as China and Brazil and a more protracted recession in Europe.

The international lending agency released an update of its World Economic Outlook issued in April, projecting the world economy will grow at 3.1 percent this year, down from 3.3 percent forecast three months ago.

Next year’s projection was cut to 3.8 percent from 4 percent.

“The world economy remains in a three-speed mode,” IMF chief economist Olivier Blanchard said.

“Emerging markets are still growing rapidly. The US recovery is steady, but much of Europe continues to struggle,” he told a news conference in Washington.

Blanchard said growth almost everywhere is a bit weaker than forecast in April, but downward revisions are particularly noticeable in developing countries.

The IMF said the possibility of a more drawn-out slowdown in developing countries is a new risk that has emerged since April.

Blanchard noted a clear downward trend in China, Russia, Brazil and India, and attributed it to slowdowns in domestic demand and consumption, but also to weaker exports because of sluggishness in advanced economies.

China’s forecast for this year was scaled back to 7.8 percent compared to 8.1 percent made in April. For next year, it fell to 7.7 percent from 8.3 percent.

“My impression is the country where there is the largest risk in terms of large decrease in growth is China,” Blanchard said.

The world’s second-largest economy has become unbalanced with too much investment and too little consumption, the IMF said.

That investment, largely financed through China’s shadow banking system, has grown rapidly during the global financial crisis of the past few years.

In addition to slowing growth, China is seeing a credit squeeze as it tries to tackle the hazards of looming debts that are not reported on bank balance sheets, but lurk throughout the country’s murky, still developing financial system.

That off-balance-sheet lending, or shadow financing, could threaten financial stability if not reined in.

Another potential drag on global growth is the possibility that the US will start tapering its extraordinary stimulus program of bond buying.

The US Federal Reserve has injected more than US$2 trillion into financial markets since late 2008 and kept borrowing costs down.

With markets already anticipating the tapering, the IMF said some developing countries are already feeling its effects in the form of falling share prices and depreciating currencies.

A recession in the eurozone 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 percent this year, compared to April’s forecast for a 0.4 percent decline.

The US economy also looks weaker than previously expected, the IMF said, citing tight fiscal and financial conditions. The Fund lowered forecasts for US growth to 1.7 percent this year, down from 1.9 in April, and to 2.7 percent for next year, down from 2.9 percent.

Japan bucked the global trend. The IMF revised its growth forecast for this year up to 2 percent from April’s 1.5 percent.

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