IMF: US pull-back from stimulus could trigger reversal in capital flows and hurt developing countries
2013-07-11 16:57:01
The IMF shaved its 2013 forecast for global growth to 3.1%, as fast as the economy expanded last year and below the IMF 3.3% projection in April. It also lowered its forecast for 2014 to 3.8% after earlier predicting a 4% expansion.
The Fund 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 4.1%, suggesting the bumpy recovery from the global financial crisis may continue.
The multilateral organization said it underestimated the depth of the recession in Europe, and also did not expect the United States 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 5%, including a lower forecast for China, Brazil, Russia, India and South Africa, often called the BRICS.
The Fund said it also 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.
If the volatility continues, growth prospects could be even worse, the IMF said.
The IMF also predicted the Euro area would remain in recession this year, with growth contracting 0.6%, before recovering slightly to just under a 1% expansion next year.
In its annual health check of the Euro zone economy the IMF said the bloc must take coordinated action to revive economic growth.
The IMF also trimmed its forecasts for US growth this year to 1.7%, a more pessimistic outlook than what the White House predicted on Monday, due to continued pain from deep government spending cuts.
However, it raised its forecast Japan. It now expects Japan's economy to grow 2% his year on the back of its monetary stimulus, which boosted confidence and private demand. It previously predicted Japan would grow 1.6% this year.
The IMF also increased its projection for growth in Britain to 0.9% this year from its previous prediction of 0.6%, 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.