Thu, Apr 10, 2014 - Page 15 News List

IMF trims forecast for world economy

FINE-TUNING:The global lender expects growth to be led by advanced economies, such as the US and the UK, but cut its forecasts for developing nations like Russia


IMF chief economist Olivier Blanchard, right, speaks during a press briefing on the global economic outlook at IMF headquarters on Tuesday in Washington.

Photo: AFP

The global economy is strengthening, but faces threats from super-low inflation and outflows of capital from emerging economies, the IMF said in its World Economic Outlook report on Tuesday.

The lending organization expects the global economy to grow 3.6 percent this year and 3.9 percent next year, up from 3 percent last year. Those figures are just one-tenth of a percentage point below the IMF’s previous forecasts in January.

The acceleration is being driven mostly by strong growth in advanced economies, including the US and the UK, and a modest recovery in the 18 nations that use the euro currency.

By contrast, developing nations — particularly Russia, Brazil and South Africa — are now expected to grow much more slowly than the IMF forecast three months ago.

Russia’s economy will likely suffer as a result of its fight with the US and Europe over the Ukraine. Others face high interest rates, which are intended to fight inflation, but could slow growth.

The IMF sharply upgraded its economic growth forecasts for the UK, Germany and Spain. It expects the eurozone to rise 1.2 percent this year and 1.5 percent next year after shrinking 0.5 percent last year. Both estimates are one-tenth of a percentage point higher than the IMF’s January forecasts.

The IMF made no changes to its forecasts for US growth, which it estimates at 2.8 percent this year and 3 percent next year.

“The recovery ... is becoming not only stronger but broader,” IMF chief economist Olivier Blanchard said at a news conference on Tuesday.

The US and European economies are benefiting from smaller government spending cuts and tax increases, Blanchard said. Banks are improving their finances, and investors are increasingly willing to buy European government debt.

Japan, however, is forecast to expand just 1.4 percent next year, down from the IMF’s previous projection of 1.7 percent, and just 1 percent next year. Higher sales taxes are expected to weigh on growth.

Growth in China, the world’s second-largest economy, is expected to continue its slowdown from its double-digit pace of a few years ago.

That will have repercussions for many nations that export raw materials and parts to Chinese factories.

China is projected to expand 7.5 percent this year and 7.3 percent next year, down from 7.7 percent last year, the IMF said.

Last week, IMF managing director Christine Lagarde urged the European Central Bank (ECB) to take “unconventional measures” to push prices up.

Inflation in the 18 countries that use the euro currency fell to an annual rate of 0.5 percent last month. Though consumers can enjoy flat prices, ultra-low inflation can stifle growth.

People and companies postpone purchases knowing that prices will be little changed months later. Debts become harder to pay off. That is a particularly severe problem in Europe, where many governments remain squeezed by debts.

Super-low inflation also raises the risk of deflation — a decline in wages and prices that can cause a recession.

Largarde’s comment drew a rebuke last week from ECB President Mario Draghi.

He said tartly that the IMF “has been ... extremely generous in its suggestions on what we should or should not do” and added that the ECB disagreed.

The 188-nation IMF and its sister organization, the World Bank, will hold their spring meetings in Washington this weekend. Finance ministers and central bank governors from the G20 are to meet today.

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