Business World

Thursday 18 January 2018

Slowing emerging markets drive IMF global forecast down

The International Monetary Fund trimmed its global growth forecast today for the fifth time since early last year.

In its mid-year health check of the world economy, the IMF also warned global growth could slow further if the pull-back from massive monetary stimulus US triggers reversals in capital flows and crimps growth in developing countries.

The IMF shaved its 2013 forecast for global growth to 3.1pc, as fast as the economy expanded last year and below the group’s 3.3pc projection in April. It also lowered its forecast for 2014 to 3.8pc after earlier predicting a 4pc expansion.

The IMF 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 4.1pc this year, suggesting the bumpy recovery from the global financial crisis may continue.

The Washington-based lender said it underestimated the depth of the recession in Europe, and did not expect the US to go ahead with growth-stunting spending cuts.

Emerging markets, which had previously been the engine of the global recovery, added to the overall subdued picture in the latest outlook, entitled "Growing Pains." The IMF cut its 2013 growth forecast for developing countries to 5pc, including a lower forecast for the BRIC countries.

A top Goldman Sachs strategist last week said investors are set to pay a hefty price for betting too much on the developing world, where countries from China to Brazil are dealing with tamped down growth expectations and the chance of social unrest.

"Risks of a longer growth slowdown in emerging market economies have now increased, due to protracted effects of domestic capacity constraints, slowing credit growth, and weak external conditions," the IMF said in the update of its World Economic Outlook.

The IMF said it assumed recent volatility in financial markets was a temporary reaction to lower growth in emerging countries and uncertainty about when the US Federal Reserve would start to pull back from its bond-buying program.

The Fund predicted the euro area would remain in recession this year, with growth contracting 0.6pc, before recovering slightly to just under a 1pc expansion next year. It also trimmed its forecasts for US growth this year to 1.7pc, a more pessimistic outlook than what the White House predicted yesterday.

However, it raised its forecast for Japan, now expecting the country’s economy to grow 2pc – a rise from 1.6pc –this year on the back of its monetary stimulus, which boosted confidence and private demand.

The projection for growth in Britain also increased – from 0.6pc to 0.9pc this year, welcome news for British finance minister George Osborne who clashed earlier this year with the IMF over its suggestion that it was time for him to ease up on austerity.

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