IMF trims global forecast as emerging markets lag

Published: 8:29 AM, July 10, 2013
Updated: 4:00 AM, July 11, 2013
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WASHINGTON — Many major emerging economies have weakened since the spring, the International Monetary Fund (IMF) said in the latest update to its economic forecasts, while advanced economies — including the United States and Europe — continue to trudge along with subpar growth, and the euro area remains mired in recession.

The Fund yesterday said that it now expects the global economy to grow about 3.1 per cent this year, the same rate as in 2012 and down from growth of 3.9 per cent in 2011. That is 0.2 percentage point lower than the Washington-based fund forecast in April.

IMF Chief Economist Olivier Blanchard said in the periodic update that emerging economies were experiencing a “slowdown in underlying growth” and the Fund lowered its forecasts for China, India, Brazil, Mexico, South Africa and Russia, among other countries.

“It’s clear that these countries are not going to grow at the same rate as they did before the crisis,” he said.

Given that emerging economies have in no small part powered the global recovery, their slowdown has a significant effect on the rest of the world. For instance, if growth in the so-called BRICS nations — Brazil, Russia, India, China and South Africa — were 2 percentage points slower than expected, a half-percentage point would be knocked off the United States’ growth rate, Mr Blanchard said.

The IMF said that the recession in the euro area had proved deeper than expected in recent months because of the persistent combination of tight credit conditions, low demand and government budget cutting.

Next year, forecasters expect growth to pick up in the 17 countries of the euro zone but to a slower rate than previously thought — 0.9 per cent, down from about 1 per cent as forecast in April.

Accenting that concern, Standard & Poor’s yesterday cut Italy’s long-term rating a notch to BBB, just two steps above “junk” status, citing the country’s falling economic output and weakened financial system.

The IMF also warned again that the tax and spending policies in the US were slowing its recovery.

Private demand is improving as the turnaround in the housing market helps to repair households’ balance sheets and as the Federal Reserve continues its campaign to encourage investors to invest with accommodative monetary policy.

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