IMF trims global economic forecast for 2014 and 2015

Outlook raises US economic forecast to 2.2% growth this year, up from 1.7%.

October 8, 2014   by The Canadian Press

WASHINGTON — The International Monetary Fund (IMF) has slightly lowered its outlook for global economic growth this year and next, mostly because of weaker expansions in Japan, Latin America and Europe.

The IMF said the global economy will grow 3.3% this year, one-tenth of a point below what it forecast in July. World growth should then pick up to 3.8% in 2015, two-tenths of a point lower than its previous estimate, the IMF said in the latest instalment of its World Economic Outlook.

The global lending organization has a more optimistic view of the US economy, which it expects will grow 2.2% this year, up from an earlier forecast of 1.7%. Its forecast for 3.1% growth in the US next year was unchanged.

The outlook was also raised for Canada to 2.3% this year and 2.4% in 2015, up a tenth of a percentage point in both years from the July forecast.

Still, the global lending organization warned that the US, Europe and Japan could face years of sluggish growth unless governments take steps to accelerate activity. It acknowledged that it has frequently cut its forecasts in the past several years, and said that was partly because of slower long-run growth in advanced economies.

Turmoil in the Ukraine and Middle East also pose risks to global growth, though for now the economic impact is limited to the countries involved, Blanchard said. The IMF forecasts that Russia’s economy will be brought to a near-standstill by sanctions and falling confidence among international investors.

The IMF forecasts that growth in the 18 countries that use the euro will be just 0.8% this year, down from 1.1% in its July forecast. It lowered its 2015 projection to 1.3% from 1.5%.

Japan will grow just 0.9% in 2014, the fund said, down from the 1.6% pace the IMF previously projected. It sees Japan’s growth slipping to 0.8% in 2015, down from its July estimate of 1%. The world’s No. 3 economy has slowed after a large sales tax took effect this spring.

It left its forecasts for China unchanged at 7.4% this year and 7.1% in 2015. While those figures would be healthy for most nations, they represent the slowest growth for China in decades.

The fund also sharply cut its forecast for Latin America and the Caribbean, which it now expects to grow just 1.3% in 2014, down from a July estimate of 2%. Growth will be 2.2% in 2015, down from 2.6%. The figures largely reflect weakness in Brazil.

The IMF urged the US, Europe and Japan to keep interest rates low to spur more borrowing, spending and growth. The European Central Bank should also consider buying government bonds if needed to avoid deflation, the report said.

The fund also said the US and Europe should benefit from fewer tax increases and spending cuts in 2014 than in previous years. T

But aging populations and lower productivity threaten to lower long-run growth in advanced economies, including the US but “especially (Europe) and Japan,” the IMF said.

To counter those trends, governments should consider spending more on infrastructure, education and job training, the IMF added.

The report echoes a speech last week from IMF managing director Christine Lagarde, who said that policy-makers need to pursue bold policies to ensure that the “new mediocre” doesn’t become permanent.

© 2014 The Canadian Press

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