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IMF cuts global outlook, warns of US default threat

WASHINGTON — The International Monetary Fund (IMF) cut its global outlook for this year and the next as capital outflows further weaken emerging markets and warned that a government default in the United States could “seriously damage” the world economy.

TODAY File Photo

TODAY File Photo

WASHINGTON — The International Monetary Fund (IMF) cut its global outlook for this year and the next as capital outflows further weaken emerging markets and warned that a government default in the United States could “seriously damage” the world economy.

Growth worldwide will be 2.9 per cent this year and 3.6 per cent next year, the IMF said in a report yesterday, compared with July predictions of 3.1 per cent and 3.8 per cent respectively. It sees emerging economies growing 4.5 per cent this year, 0.5 percentage point less than three months ago, as projections were reduced for China, Mexico, India and Russia.

“Advanced economies are gradually strengthening” while “growth in emerging market economies has slowed”, IMF Chief Economist Olivier Blanchard wrote in the World Economic Outlook report. “This confluence is leading to tensions, with emerging market economies facing the dual challenges of slowing growth and tighter global financial conditions.”

The IMF’s forecasts factor in a short US government shutdown and an agreement on the nation’s debt-limit before an Oct 17 deadline. A stalemate that causes a default “could seriously damage the global economy”, it said.

“A longer shutdown could have sizable adverse growth implications,” the IMF added. “A failure to promptly raise the debt ceiling could also adversely affect financial markets and economic activity, with spillovers to the rest of the world.”

With Europe overcoming its debt crisis and a recovery of the US housing market, global policymakers’ concerns are shifting to the uncharted territory of exiting extraordinary monetary stimulus.

The fund said its forecasts assume the Fed will not raise its benchmark interest rate before 2016 and that the US central bank will start tapering its bond-buying programme later this year.

The IMF urged the world’s major economies to adopt policies that will boost their prospects or face prolonged subdued expansion, especially at a time of weaker growth in China, which will hurt commodities exporters and other developing economies. BLOOMBERG

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