IMF cuts growth outlook, warns rich nations to do more
THE International Monetary Fund (IMF) has trimmed its forecast for global growth blaming a weak start to the year and a less optimistic outlook for emerging economies.
The Washington-based lender said the world economy would grow by 3.4pc this year, down from the 3.7pc forecast in April.
With somewhat stronger growth expected in some advanced economies next year, the global growth projection for 2015 remains at 4pc.
In an update to its World Economic Outlook, the fund warned geopolitical risks could lead to sharply higher oil prices.
"Financial market risks include higher-than-expected US long-term rates and a reversal of recent risk spread," it said.
"Robust demand momentum has not yet emerged despite continued very low interest rates and easing of brakes to the recovery, including from fiscal consolidation or tight financial conditions."
Central banks in the United States, Japan, the euro zone and Britain have all sharply lowered rates to boost economic growth and pledged to keep them there for longer to let the recovery take hold.
The IMF said bright spots in the global economy included growth pick-ups in Japan, Germany, Spain and the United Kingdom.
But they were overshadowed by weak growth in the United States in the first half of the year, as well as a slowdown in domestic demand in China, where the government sought to ease lending and cool the housing market.
It warned geopolitical risks have risen since April with risks of an oil price spike due to recent developments in the Middle East, while those related to the Ukraine are still present.
"In global financial markets, there is a risk of a renewed rise in longer-term interest rates, particularly if US long-term rates increase more sharply and rapidly than expected as monetary policy normalisation proceeds," the f und said.
It also warned that in major advanced economies there was a risk of stagnation in the medium term.
Persistently lower inflation or price declines remained a risk in the euro zone, while emerging economies, particularly those with domestic weaknesses and external vulnerabilities, may face a sudden worsening of financial conditions and a reversal in capital flows in the event of a shift in financial market sentiment, the IMF said.
Russia also dragged down the overall forecasts, as its economy is expected to barely grow this year due to sanctions and other impacts of the Ukraine crisis. In fact, out of the BRICS countries - Brazil, Russia, India, China and South Africa - only India avoided an IMF ratings downgrade, as business sentiment recovers after the country's election.
The IMF warned only some of the factors leading to the reduction in growth were temporary, and said richer nations in particular faced the risk of economic stagnation unless they do more to boost growth. (Additional reporting Reuters)