IMF cuts global growth outlook as emerging markets weaken | Business| Economy and finance news from a German perspective | DW | 08.10.2013
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IMF cuts global growth outlook as emerging markets weaken

The International Monetary Fund has revised downward its global growth forecast for 2013 and 2014. The lender believes slower-than-expected expansion in emerging economies will prove a drag on the world economy.

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Concerns over China's slowing growth

The global economy was set to grow 2.9 percent this year and 3.6 percent in 2014, the Washington-based International Monetary Fund (IMF) said in its current growth outlook released on Tuesday.

The two growth figures are both 0.2 percentage points lower than in the international lender's previous July forecast. The IMF attributed the downward revision to weaker-than-expected growth in emerging economies such as China, Brazil and India.

In its projections for this year and next year, the IMF also lowered its outlook for the United States economy by 0.1 percent and 0.2 percent respectively. The world's largest economy was expected to grow 1.6 percent in 2013 and 2.6 percent next year.

"Unless there are fiscal accidents, the recovery should continue...benefiting from steady consumer and business spending," said the IMF's Chief Economist Olivier Blanchard.

Blanchard also warned, however, that failure by the country to repay its debt as a result of the US budget standoff would have catastrophic consequences for the global economy as a whole.

Europe overcomes recession

European economies, notably in the eurozone, were benefiting from less sweeping government spending cuts and lower tax burdens on consumers and businesses, the IMF said.

As a result, the 17 nations using the euro would return to about 1 percent of growth in 2014, after shrinking 0.4 percent this year. Those estimates remained largely unchanged from the one made by the IMF in July.

Asian economies face headwinds

Regarding Asian growth, however, the fund expects substantial fallout from a rapid slowdown in China. The Asian economic powerhouse is scheduled to see its expansion rate to slow further, reaching just 7.6 percent this year, after 7.7 percent in 2012 and 9.3 percent in 2011.

The slowdown in China would affect industrial activity in much of emerging Asia with only Japan remaining the main bright spot in the region, IMF noted.

However, the fund also warned that Tokyo must enact deeper reforms, if it didn't want to see its growth rate slow below 1.2 percent in 2014, after 2 percent this year.

Other emerging economies in Asia were facing the additional risk of major outflows of capital as a result of a further tightening in US monetary policy and worsening domestic fundamentals.

Therefore, the IMF called on the United States' central bank to clearly communicate its plans as to when it was planning to scale back its stimulus program.

Robust African growth slightly dips

Weaker commodity prices as well as a reversal in capital flows were likely to trim economic growth in sub-Saharan Africa this year, the IMF report said.

However, economic expansion in the region remained robust at a rate of 5 percent in 2013, and an upwardly revised 6 percent next year.

Despite such impressive rates, sub-Saharan Africa remained vulnerable to external shocks.

This was also true for countries in the Middle East and North Africa, the IMF noted, which would be adversely affected by a drop in oil prices.

"A sustained decline in oil prices would leave many oil exporters in the region with fiscal deficits," IMF said, criticizing that many countries had failed to build buffers against oil price shocks and were running hard-to-reverse current expenditures.

uhe/kms (AP, AFP, dpa, Reuters)

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