WASHINGTON: The International Monetary Fund cut its growth forecast for the global economy yesterday, pointing to the threat from the Ukraine crisis and the slowdown in major emerging economies.
While the world economy has picked up pace, anchored by the United States and China, the global crisis lender pointed to looming risks, from the standoff between Russia and the West over Ukraine, to poorly handled policy in countries like Brazil, and deflation in the euro area.
“The recovery which was starting to take hold in October is becoming not only stronger, but also broader,” said chief IMF economist Olivier Blanchard, introducing the IMF’s latest World Economic Outlook report.
“The various brakes that hampered growth are being slowly loosened. Fiscal consolidation is slowing, and investors are less worried about debt sustainability.”
The report, released ahead of the annual IMF-World Bank spring meetings in Washington beginning Thursday, nevertheless cut back the global growth forecast to 3.6 percent this year and 3.9 percent in 2015. The global economy grew 3.0 percent in 2013.
Each estimate was trimmed by 0.1 percentage points from January, with the downgrade based on data before Ukraine plunged into crisis with an anti-government revolt and Russia’s annexation of Crimea.
Blanchard said the outlook for Russia, already sagging before the crisis, could likely be worse now, as it loses income from energy sales and sanctions from the West begin to bite. But other worries have mounted since the beginning of the year, including the ability of emerging economies like Brazil, South Africa and Turkey to deal with higher interest rates, lower capital flows and lower commodity prices. It said the “worrying” emerging market downturn grew from domestic policy shortcomings and tighter financial conditions both domestically and internationally. Those economies remain especially vulnerable to market turbulence as the Federal Reserve slowly tightens US monetary conditions, the IMF said.
China, too, continues to pull its weight, despite a sharp slowdown. The IMF’s forecasts are unchanged, seeing growth at 7.5 percent this year and 7.3 percent next, on the belief that Beijing will keep a firm hand on the financial frailties coming to the surface now. The eurozone, too, has gained ground, with the outlook for growth in the 18-nation bloc at 1.2 percent this year and 1.5 percent in 2015.
Japan is in a similar situation, its stimulus still facing challenges, including deflation and last week’s hike in consumption taxes, which could send the economy into recession this quarter. AFP
