Emerging and developing economies continue to
be the engine of global expansion, while the United States is poised
to pull away from slow-growing Europe, the International Monetary
Fund said Tuesday.
With the eurozone mired in recession, the IMF pared back its
global projection for 2013 growth by 0.2 percentage points to 3.3 per
cent. The crisis lender kept 2014 worldwide growth pegged at 4 per
cent.
Emerging and developing economies are slated to continue to
deliver the lion's share of global expansion, rising to a projected
5.3 per cent growth in 2013 and 5.7 per cent next year, in the IMF's
twice-annual World Economic Outlook.
After shrinking by an estimated 0.6 per cent last year, the
eurozone economy is projected to contract another 0.3 per cent in
2013 before crawling back into the black with 1.1-per-cent growth
next year, the IMF said.
The US, which has generally shared Europe's slow growth tendencies
since the 2008 financial crisis, can expect 1.9-per-cent growth this
year and a more robust 3-per-cent expansion in 2014, according to IMF
projections.
"What was until now a two-speed recovery, strong in emerging
market and developing economies but weaker in advanced economies, is
becoming a three-speed recovery," IMF chief economist Olivier
Blanchard said.
"Emerging market and developing economies are still going strong,
but in advanced economies, there appears to be a growing bifurcation
between the United States, on one hand, and the euro area on the
other."
The IMF expected even sharper contraction than previously forecast
this year for the eurozone, especially troubled economies Italy and
Spain.
Blanchard said that "adverse feedback loops" of weak banks,
government fiscal risk, low activity and low confidence "are still
reinforcing each other."
"Most euro periphery countries, notably Italy and Spain, are
expected to have substantial contractions in 2013," he said. "The
process of internal devaluation is slowly and painfully taking place,
and most of these countries are slowly becoming more competitive.
External demand, however, is just too weak to compensate for even
weaker internal demand."
The Italian economy was projected to shrink by 1.5 per cent this
year, while Spain is expected to contract by 1.6 per cent; both would
return to growth of less than 1 per cent in 2014, forecast the IMF.
The IMF said that tight credit conditions have continued to hurt
the eurozone, with "deep recessions continuing across much of the
periphery and weakness spilling over to the core, reinforcing weaker
near-term growth dynamics in these economies."
Last week, IMF managing director Christine Lagarde rapped the
European Union for failing to push forward with banking reforms,
particularly on its periphery, and urged Brussels to "clean up" the
financial sector by recapitalizing, restructuring or "where
necessary" shutting down banks.
The continued weakness of banks has made it difficult for
businesses and consumers to take advantage of the European Central
Bank's loosening monetary policy, she said.
Tuesday's World Economic Outlook noted that some risks have
declined in recent months.
US budget cuts have made a significant dent in Washington's
deficit, though at some cost to growth. Meanwhile, the eurozone's
decisive actions - shoring up its bailout mechanisms, reaching a deal
on Greek debt relief and forging agreement on a single banking
supervisory mechanism - have restored faith in the monetary union.
But this year's expected slow growth of 0.6 per cent in Germany
and 0.1-per-cent contraction in France - the two economic powerhouses
at the core of the eurozone - portend risks of stagnation, stress in
the financial system and political fatigue that could derail badly
needed structural reforms.
"Recent good news about the United States has come with renewed
worries about the euro area," Blanchard said. "Given the strong
interconnections between countries, an uneven recovery is also a
dangerous one."
Deficits as a percentage of gross domestic product are on the
decline in the world's advanced countries, despite their slow
economic growth, the IMF said in its separate Fiscal Monitor report.
Advanced economy deficits will fall from an estimated 5.9 per cent
of combined GDP in 2012 to a projected 4.7 per cent this year and 3.8
per cent in 2014. Growth in the same countries is on pace to repeat
last year's 1.2 per cent.
The IMF sees emerging markets as enjoying steady growth above 5
per cent in 2012-14, while their government deficits hold steady at
just over 2 per cent for the same period.
