Eurozone, Japan hold back growth: IMF


Fri, Jan 25, 2013 - Page 15

An unexpectedly stubborn eurozone recession and weakness in Japan will weigh on global economic growth this year before a rebound next year that should deliver the fastest expansion since 2010, the IMF said on Wednesday.

The IMF trimmed its forecast for global growth this year to 3.5 percent from the 3.6 percent it projected in October last year, but said it looked for expansion of 4.1 percent next year if the eurozone recovery takes a firm hold. It said the world economy grew 3.2 percent last year.

Healthy global growth rates of above 4 percent were last seen in 2010, when output expanded 5.1 percent as the financial crisis eased.

“Optimism is in the air, particularly in financial markets, and some cautious optimism may indeed be justified,” IMF chief economist Olivier Blanchard said at a news conference.

“Comparing to where we were at the same time last year, acute risks have decreased,” he said, adding that Washington had largely dodged the “fiscal cliff” of tax hikes and spending cuts that were seen as a risk to growth, and that policy actions in Europe had helped calm the region’s debt crisis.

Still, the IMF warned that big downside risks remain, including that the eurozone’s crisis could flare anew and that the US Congress could tighten the budget excessively.

IMF managing director Christine Lagarde, speaking at the World Economic Forum in Davos, Switzerland, said the global economic recovery is still weak and uncertainty still high. She urged global finance leaders to keep up the momentum on policy changes to put uncertainty to rest, saying that “2013 will be a make-or-break year.”

The IMF said the US economy was set to expand 2 percent this year, with growth rising above trends in the second half of this year and reaching 3 percent next year.

“The priority is to avoid excessive fiscal consolidation in the short term, promptly raising the debt ceiling, and agree on a credible medium-term fiscal consolidation plan focused on entitlement and tax reform,” it said.

For advanced economies as a whole, the IMF said activity would likely remain weak this year with growth of just 1.4 percent, before strengthening to 2.2 percent next year. Blanchard said growth would be too tepid this year to lower unemployment in advanced economies.

The IMF said a prolonged stagnation in the eurozone is a threat, especially if the currency bloc fails to complete fiscal and banking reforms.

In Japan, the IMF said the economy is likely to manage 1.2 percent growth this year, helped by fiscal stimulus, an easing of monetary policy and a weaker yen, but it warned that growth was likely to slow to 0.7 percent next year.

It urged Tokyo to adopt a more ambitious monetary policy easing and a “credible” medium-term plan to tighten its budget.

Meanwhile, growth in emerging and developing economies should strengthen to 5.5 percent this year and 5.9 percent next year, the IMF said, adding that supportive policies had helped boost growth although weak demand from trading partners would still be a problem.

The pace of growth in China was set to increase to 8.2 percent this year and 8.5 percent next year, up from last year, but still lower than the 10 percent growth notched in 2010, the fund said.

Developing Asia, including China and India, will remain the fastest-growing region in the world, according to IMF forecast, with growth of 7.1 percent this year and 7.5 percent next year.

Africa, with growth likely about 5.8 percent this year and 5.7 percent next year, is the world’s second-fastest growing region.