IMF cuts 2013 growth forecast as it warns of need for urgency in EU
The International Monetary Fund (IMF) yesterday cut its global growth forecast and warned that the outlook could dim further if policymakers in Europe do not act with enough force and speed to quell their region's debt crisis.
In a mid-year health check of the world economy, the IMF shaved its 2013 forecast for global economic growth to 3.9pc from the 4.1pc it projected in April, trimming projections for most advanced and emerging economies. It left its 2012 forecast unchanged at 3.5pc.
It left Ireland's growth figures unchanged and said the country was "on track" to meet the programme targets and keep pace with the objective of reaching the 3pc of GDP eurozone threshold for the headline deficit by 2015.
"The general government deficit target of 8.6pc of GDP for 2012 appears likely to be met, especially given the slightly better than expected fiscal performance through May," it said.
In a surprise move, the fund slashed growth projections for the UK to 0.2pc this year and to 1.4pc in 2013 -- well below what Britain's official forecaster, the Office for Budget Responsibility, predicted in March.
The sharp downgrade chimes with other economists' darkening assessments, and the IMF said it was too soon to say if a recent flurry of official measures to stimulate growth would be enough, or if the government would have to ease back further on its fiscal austerity plans.
It also cautioned that the productive capacity in a number of emerging market economies, such as China, India and Brazil, might be lower than previously believed and future growth could disappoint.
"Downside risks to this weaker global outlook continue to loom large," the IMF said in an update of its World Economic Outlook. "The most immediate risk is still that delayed or insufficient policy action will further escalate the euro-area crisis."
The global lender said advanced economies would only grow 1.4pc this year and 1.9pc in 2013. It chopped its forecast for growth in emerging economies this year and next, projecting they would expand 5.9pc in 2013 and 5.6pc in 2012. Both figures are 0.1 percentage points lower than in April.
The IMF cut its growth forecast for the crisis-hit eurozone to 0.7pc in 2013, while maintaining its projection of a 0.3pc contraction this year. It said it now believed Spain's economy would shrink both this year and next.
The fund praised measures adopted by European leaders at a summit in June as "steps in the right direction" but called for more fiscal and banking integration. It urged the creation of a pan-European deposit insurance guarantee programme and a mechanism to resolve failing banks.
"The utmost priority is to resolve the crisis in the eurozone," the IMF said.
It urged the ECB to provide ample liquidity to support banks under "sufficiently lenient conditions" and nudged the central bank to further ease monetary policy. It made clear, however, that Europe was not the only risk to the outlook.
The IMF, which trimmed its US forecasts slightly, said concerns were rising over a political battle brewing over how to avoid painful automatic spending cuts and tax increases at the start of next year.
The US faces what economists are calling a "fiscal cliff", with the scheduled expiration of Bush-era tax cuts and $1.2 trillion (€0.9trn) in automatic spending reductions -- enough fiscal tightening to knock the still-weak US economy back into recession. (Reuters)