Global Growth Slower Than Expected As Emerging Markets Slow: IMF
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The International Monetary Fund on Tuesday cut its global economic growth forecast for 2013, citing new downside risks from recession-hit Europe and a slowdown in emerging markets.
In its mid-year update to the World Economic Outlook, the IMF on Tuesday scaled back its 2013 forecast for global growth to 3.1 percent, as fast as the economy expanded last year and below the Fund’s 3.3 percent projection in April.
The International Monetary Fund on Tuesday cut its global economic growth forecast for 2013, citing new downside risks from recession-hit Europe and a slowdown in emerging markets.
In its mid-year update to the World Economic Outlook, the IMF on Tuesday scaled back its 2013 forecast for global growth to 3.1 percent, as fast as the economy expanded last year and below the Fund’s 3.3 percent projection in April.
Citing new downside risks and increased financial market volatility, the Washington-lender also lowered its forecast for 2014 to 3.8 percent after earlier predicting a 4 percent expansion. The Fund has trimmed its growth forecast for 2013 in every major report since April 2012 after initially projecting the global economy would expand by as much as 4.1 percent this year.
It its review, the IMF said it had underestimated the depth of the recession in Europe and had not expected the United States to go ahead with its planned sequester cuts.
Despite “signs of hope” in the eurozone, the IMF slashed its growth forecast for the region predicting the currency area will contract by 0.6 percent this year, the same as in 2012, and down two-tenths of a point from its last estimate.
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The Fund also lowered its forecasts for the U.S. 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. U.S. growth was weakening under pressure from government spending cuts that offset improving demand in the private sector, notably from a recovery in the housing market, it said.
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Additionally, the Fund said emerging economies – which have been the main engine of global growth in the recent years – have started to weaken before the developed markets have fully recovered.
Growth in the emerging-market and developing economies is expected to slow to 5.0 percent in 2013, instead of the 5.3 percent expansion predicted a few months ago.
“Emerging-market economies have generally been hit hardest,” the Fund said in its report. “Recent increases in advanced economy interest rates and asset price volatility combined with weakness in emerging market domestic activity led to some capital outflows, equity price declines, rising local yields, and currency depreciation in the latter.”
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. “After years of strong growth, the BRICS, to call them that way, are beginning to run into speed bumps,” said IMF chief economist Olivier Blanchard.
[quote] And while growth in emerging countries has slowed, inflation has not fallen with it, suggesting the economies are already growing close to their potential, he said. [/quote]“This has an important implication: that growth in emerging markets will remain high, but maybe substantially lower than it was before the crisis,” Blanchard explained.
The Fund added China’s slowdown was a particularly big risk, as the world’s second-largest economy navigates a shift to consumption-led growth. Any slowdown could hit commodity exporters, as China is one of the world’s biggest energy consumers.
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Some of Sub-Saharan Africa’s largest economies, such as Nigeria and South Africa, face weaker growth in part due to weaker external demand, while in the Middle East and North Africa, growth remains weak “because of difficult political and economic transitions,” the IMF said.
However, it raised its forecast for Japan, expecting Japan’s economy to grow 2 percent this year on the back of its monetary stimulus, which boosted confidence and private demand. It previously predicted Japan would grow 1.6 percent this year.
But the Fund warned Japan’s new economic strategy, known as “Abenomics,” also poses risks for the world, as investors could lose confidence if Japan does not implement structural reforms.
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