IMF Slashes Global Growth Forecasts

Demonstrations in Greece opposing the imposition of austerity. German Chanceller Angela Merkel visited the country on October 9, 2012., a photo by Pan-African News Wire File Photos on Flickr.

July 9, 2013 4:01 pm

IMF slashes global growth forecasts

By Robin Harding in Washington
Financial Times

The International Monetary Fund has slashed its growth forecasts for 2013 and 2014 as it warned of a slowdown in key emerging markets and a more protracted recession in the euro area.

In an update to April’s World Economic Outlook, the IMF cut its global growth forecasts by 0.2 percentage points for both years, to 3.1 per cent for 2013 and 3.8 per cent for 2014.

The downgrades highlight the gathering clouds around the world economy as big developing countries – such as China and Brazil – start to weaken before the developed markets have fully recovered.

For 2014, the IMF cut its growth forecast for Russia by 0.5 percentage points to 3.3 per cent, for China by 0.6 percentage points to 7.7 per cent and for Brazil by 0.8 percentage points to 3.2 per cent.

“If you look country by country it seems to be specific . . . so in China it looks like unproductive investment, in Brazil it looks like low investment and in India it looks like policy and administrative uncertainty,” said Olivier Blanchard, the IMF’s chief economist.

“But you wonder whether there is not something behind. I think behind this is a slowdown in underlying growth – not the cyclical component but just the average rate,” said Mr Blanchard. “It’s clear that these countries are not going to grow as fast as they did before the crisis.”

A permanently slower growth rate in big developing countries is likely to have profound repercussions for the world economy and translate into weaker growth for advanced countries as well.

Mr Blanchard said that there are “signs of hope” in the eurozone, even as the IMF slashed its growth forecasts further, predicting that the currency area will contract by 0.6 per cent this year, the same as in 2012.

The IMF forecast a deeper recession in Italy this year, cutting its outlook by 0.3 percentage points to a decline of 1.8 per cent, and abandoned its forecast that Spain will grow next year. It now predicts stagnation instead of growth of 0.7 per cent.

“In the core countries there is some progress, some structural reforms, and fiscal consolidation is very strong,” said Mr Blanchard. “I think we’re going to move from negative growth this year to positive growth next year.”

Mr Blanchard added that the periphery of the eurozone was making progress in becoming more competitive but domestic demand remained extremely weak.

The fund also lowered its forecasts for the US slightly, cutting them from 1.9 per cent to 1.7 per cent growth for 2013, and from 2.9 per cent to 2.7 per cent for 2014. That reflected a new assumption that sequestration of public spending will continue into 2014.