IMF Cuts Global Growth Forecasts, Says Recovery Uneven

(RTTNews) - The International Monetary Fund on Tuesday slashed the growth projections for the world economy and said the recovery remains weak and uneven amid rising financial and geopolitical risks.

In its latest World Economic Outlook, the Washington-based lender cut the global growth projection for this year to 3.3 percent from 3.4 percent predicted in July. The forecast for 2015 was slashed to 3.8 percent from 4 percent.

The downgrade reflects setbacks to economic activity in the advanced economies during the first half of 2014, and a less optimistic outlook for several emerging market economies, the report said.

"These worse prospects are in turn affecting confidence, demand, and growth today," Olivier Blanchard, Economic Counsellor and head of the IMF's Research Department, said.

"In advanced economies, the legacies of the pre-crisis boom and the subsequent recession, notably high debt burdens and unemployment, still cast a shadow on the recovery, and low potential growth ahead is a concern."

Global growth remains "mediocre" as investment has been weaker than expected for sometime and the economic evolution is becoming more differentiated with the pace of recovery turning more country-specific, he noted.

Advanced economies as a whole was forecast to expand 1.8 percent this year, unchanged from the July projection. Next year, the group is expected to grow 2.3 percent, which is slightly slower than the 2.4 percent seen earlier.

The 2014 growth forecast for the U.S. economy was reduced to 2.2 percent from 2.7 percent. The outlook for 2015 was maintained at 3.1 percent.

Eurozone's 2014 growth projection was lowered to 0.8 percent from 1.1 percent. The 18-nation economy is forecast to expand 1.3 percent next year, which is less than the July prediction of 1.5 percent growth.

Germany's growth forecast for this year was cut to 1.4 percent from 1.9 percent and the outlook for next year was slashed to 1.5 percent from 1.7 percent.

Projections for France and Italy were downgraded, while Spain received an upgrade. France was expected to grow 0.4 percent this year and 1 percent next year. The Italian economy was forecast to contract 0.2 percent, but expand 0.8 percent next year.

Spain's 2014 growth forecast was raised to 1.3 percent from 1.2 percent and the projection for 2015 was lifted to 1.7 percent from 1.6 percent.

Outside the euro area, Japan's growth forecast for this year was severely cut to 0.9 percent from 1.6 percent and the projection for next year was lowered to 0.8 percent from 1 percent.

Growth projections for the U.K. were left unchanged at 3.2 percent for this year and 2.7 percent for 2015. Canada saw its forecasts boosted by 0.1 basis point each to 2.3 percent and 2.4 percent, respectively.

Among emerging markets, China's forecasts were maintained at 7.4 percent for this year and 7.1 percent for 2015. India's growth forecast for 2014 was raised to 5.6 percent from 5.4 percent and the outlook for next year was held at 6.4 percent.

Russia's growth forecast for 2014 was kept at 0.2 percent, while the projection for 2015 was cut to 0.5 percent from 1 percent.

The Brazilian economy was projected to grow 0.3 percent this year and 1.4 percent next year. Both figures were revised down.

Mexico's growth forecast for this year was kept at 2.4 percent and the forecast for 2015 raised to 3.5 percent from 3.4 percent.

The report noted that heightened geopolitical risks could prove more persistent, and could also worsen. That may lead to sharply higher fuel prices, trade disruptions, and further economic distress, the IMF warned.

The lender also cautioned that loose financial conditions and consequent yield-hunting could fuel financial excess. "A larger-than-expected increase in U.S. long-term interest rates, geopolitical events, or major growth disappointments could trigger widespread disruption," the report said.

The IMF urged policymakers in advanced economies to avoid prematurely normalizing monetary policy, but to embrace more fiscal adjustment to support the recovery on a long-term basis.

Emerging markets will need to deal with monetary policy normalization in the U.S. and possible shifts in financial market sentiment, the IMF said.