News Column

IMF Cuts Global Economic Forecast

October 9, 2012

Takehiko Kambayashi

Global Economy

The International Monetary Fund (IMF) on Tuesday downgraded its global economic growth forecast for 2012 and 2013 while warning that growth would be cut further if European and US officials fail to stem their economic crises.

The global outlook for 2012 is now 3.3 per cent, down 0.2 percentage points from the international lender's July projection, while its 2013 forecast has been lowered to 3.6 per cent from the 3.9 per cent it had predicted three months ago.

"A key issue is whether the global economy is just hitting another bout of turbulence in what was always expected to be a slow and bumpy recovery or whether the current slowdown has a more lasting component," the IMF said in its semi-annual World Economic Outlook.

"The answer depends on whether European and US policymakers deal proactively with their major short-term economic challenges," it said.

The slowdown in the global economy has been attributed mainly to the lingering eurozone debt crisis and the so-called fiscal cliff in the United States, which faces another recession with spending cuts and tax hikes mandated in January, the IMF said.

"Downside risks have increased and are considerable," the IMF said. IMF research suggested "there is a 1-in-6 chance of global growth falling below 2 per cent."

The IMF estimated growth for advanced economies at 1.3 per cent in 2012 and at 1.5 per cent in 2013, both down from 1.4 per cent and 1.8 per cent, respectively, in its July forecasts.

Advanced economies grew 3 per cent in 2010 and 1.6 per cent in 2011.

"Those forces pulling growth down in advanced economies are fiscal consolidation and a still-weak financial system," IMF chief economist Olivier Blanchard wrote in his foreword to the World Economic Outlook.

"In many countries, banks are still weak, and their positions are made worse by low growth," Blanchard said. "As a result, many borrowers still face tight borrowing conditions."

Emerging and developing economies are projected to grow at 5.3 per cent in 2012 and 5.6 per cent in 2013, compared to July expectations of 5.6 per cent this year and 5.8 per cent next year.

The numbers for those countries, which are still relatively solid, were down from 7.4 per cent in 2010 and 6.2 per cent in 2011, reflecting weaker external demand because of uncertainties in the eurozone and other rich countries.

China's growth forecast was cut by 0.2 percentage points both in 2012, when the IMF forecast it to be 7.8 per cent, and in 2013, when it is projected to be 8.2 per cent, mainly because of weaker external demand.

IMF economist Thomas Helbling said in Tokyo, where the IMF and World Bank are holding their annual meetings this week, that the world's second-largest economy would see "a soft landing," in which it avoids a recession as it tries to slow economic growth to reduce inflation.

"Low growth and uncertainty in advanced economies are affecting emerging markets and developing economies through both trade and financial channels, adding to homegrown weaknesses," Blanchard said.

However, central banks in many advanced economies have taken monetary easing measures, which are having a positive impact on financial stability and employment, the report said.

"An effective policy response in the major advanced economies is the key to improving prospects and inspiring more confidence about the future," the IMF said.

The report was released ahead of the IMF-World Bank annual meetings. Nearly 20,000 participants - including officials from 188 member countries, their central banks, private sectors and international organizations - are attending the meetings in the Japanese capital.

Source: Copyright 2012 dpa Deutsche Presse-Agentur GmbH

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