IMF trims world forecast

FEELING FLAT::The fund is concerned about differences between emerging countries, a stuttering US and a stagnating eurozone, but said there was some hope


Thu, Apr 18, 2013 - Page 15

The IMF on Tuesday cut its world growth forecast for this year as the eurozone recession continued to drag, but predicted growth overall would pick up in the second half of the year.

In its newest assessment of the global economy, the IMF said world output would expand by 3.3 percent this year, compared to the 3.5 percent it predicted in January.

That left the pace of the world economic expansion virtually flat from last year’s 3.2 percent, with slower-than-expected growth in the US and prolonged stagnation in the euro area the key reasons behind the downgrade.

Despite some promising signs, though, the IMF expressed concerns over a global fragmentation between the dynamism of the emerging countries, the US just puttering along in second gear, and the eurozone stagnating.


“We are in a better place but ... we’re not out of the woods,” IMF chief economist Olivier Blanchard said at a news conference.

The global crisis lender said that short-term risks still loomed especially in the eurozone, where Cyprus’ fresh bailout and Italy’s weaknesses could still spark fresh setbacks.

“The slump in the eurozone is worrisome,” Blanchard said.

However, the IMF also saw growth slower in large emerging economies like Russia, China, Brazil and India, underscoring the global sense of economic weakness.

“Global prospects have improved again but the road to recovery in the advanced economies will remain bumpy,” the IMF said in its World Economic Outlook report.

“In the medium term, the key risks relate to adjustment fatigue, insufficient institutional reform, and prolonged stagnation in the euro area as well as high fiscal deficits and debt in the United States and Japan,” the report said.

“In this setting, policymakers cannot afford to relax their efforts,” it said.


With immediate crises out of the way, the fund stuck close to its previous estimate for global growth next year, predicting a 4 percent expansion, “assuming that policymakers avoid setbacks and deliver on their commitments.”

US growth was forecast at 1.9 percent this year, due to larger-than-expected government spending cuts, and the eurozone was expected to contract 0.3 percent.

Even in Europe’s powerhouse Germany, growth is forecast at less than 1 percent this year.

The IMF upped its growth forecast for long-stagnant Japan, to 1.6 percent from 1.2 percent, as the Bank of Japan launches an ambitious stimulus plan.

However, that also promised to elevate further Tokyo’s massive debt load, which the IMF says is an important point of concern without a medium-term plan to reduce its debt.

Among emerging economies, the IMF lowered its this year’s forecast for China’s growth by 0.1 percentage point to 8 percent — still better than last year’s pace — and Brazil by 0.5 percentage points to 3 percent.

The IMF said that Asia and Sub-Saharan Africa remain supported by resilient domestic consumer demand, and should improve if growth in the eurozone, US and other advanced economies picks up.

The Middle East-North Africa region is still struggling with political reforms, and inflation and foreign exchange market pressures are setting tough challenges in some Latin American countries, it said.

The IMF said the “bumpy” progress of the advanced economies was making it difficult for developing countries themselves to get traction as well as to manage gushes of capital and upward pressure on currencies.

Although worldwide inflation was generally under control, it warned advanced-economy central banks stoking their markets with liquidity to remain on guard for a change in price expectations.


However, it said, growing complaints about competitive exchange rate devaluations “appear overblown.”

“The US dollar and the euro appear moderately overvalued and the renminbi moderately undervalued. The evidence on valuation of the yen is mixed,” it said.

“The challenge for recipient countries is to accommodate the underlying trends while reducing the volatility of the flows when they threaten macro or financial stability,” it said.