The International Monetary Fund has slashed its growth forecasts for 2013 and 2014 as it warned of a slowdown in key emerging markets and a more protracted recession in the euro area.
In an update to April’s World Economic Outlook, the IMF cut its global growth forecasts by 0.2 percentage points for both years, to 3.1 per cent for this year and 3.8 per cent for 2014.
The downgrades highlight the gathering clouds around the world economy as big developing countries – such as China and Brazil – start to weaken before the developed markets have fully recovered.
For 2014, the IMF cut its growth forecast for Russia by 0.5 percentage points to 3.3 per cent, for China by 0.6 percentage points to 7.7 per cent, and for Brazil by 0.8 percentage points to 3.2 per cent.
"If you look country by country it seems to be specific ... so in China it looks like unproductive investment, in Brazil it looks like low investment, and in India it looks like policy and administrative uncertainty," said Olivier Blanchard, the IMF's chief economist.
Slowdown
"But you wonder whether there is not something behind. I think behind this is a slowdown in underlying growth – not the cyclical component but just the average rate," said Mr Blanchard. "It's clear that these countries are not going to grow as fast as they did before the crisis."
A permanently slower growth rate in big developing countries is likely to have profound repercussions for the world economy and translate into weaker growth for advanced countries as well.
Mr Blanchard said there were “signs of hope” in the euro zone, even as the IMF slashed its growth forecasts further, predicting the currency area would contract by 0.6 per cent this year, the same as in 2012.
The IMF forecast a deeper recession in Italy this year, cutting its outlook by 0.3 percentage points to a fall of 1.8 per cent, and abandoned its forecast that Spain will grow next year. It predicts stagnation instead of growth of 0.7 per cent.
Positive growth
"In the core countries there is some progress, some structural reforms, and fiscal consolidation is very strong," said Mr Blanchard. "I think we're going to move from negative growth this year to positive growth next year."
The IMF lowered its forecasts for the US slightly, cutting them from 1.9 per cent to 1.7 per cent growth for this year, and from 2.9 per cent to 2.7 per cent for 2014. – Copyright The Financial Times Limited 2013
