IMF cuts growth outlook for global economy

17th July 2012

In its latest World Economic Outlook, the International Monetary Fund projects that the global economy will grow 3.5 percent this year, down 0.1 percentage points from the April forecast, and 3.9 percent in 2013, 0.2 percentage points lower. The projections are based on three important assumptions:

• That there will be enough policy action for financial conditions in the euro zone periphery, which includes Greece and Spain, to ease gradually through 2013;

• That U.S. fiscal policy does not tighten sharply in 2013 – referring to the so-called ‘fiscal cliff,' when the Bush-ea tax cuts expire at the end of the year and big spending cuts also kick in; and

• That policymakers in of some the major emerging markets will act to stimulate growth.

In an interview with The Wall Street Journal, which you can read here, Olivier Blanchard, the IMF's chief economist said higher uncertainty is dragging down growth in the global economy. He also warned that European leaders need to step up quickly to ease the borrowing cots for Spain and Italy.

One of the hardest hit countries by this report – the UK – is projected to grow by a measly 0.2 percent this year, down from the 0.8 percent cited in April.

"For Labour, and even some senior figures inside the Fund, this downward revision in Britain's economic prospects ought to re-open the argument over the government's deficit plans and the need for a ‘Plan B'" writes the BBC's Stephanie Flanders.

She continued: "The government will be trying to sound creative on the subject of growth later this week, when it provides more details of its plans to leverage more private sector infrastructure and housing investments."

"But I think we can be confident it won't be described as any Plan B. For its part, the IMF, in a separate update to its fiscal forecasts also released today, describes the government's decision to maintain its medium term target for the deficit as "appropriate"."

Meanwhile, even as the fund trimmed its predictions for the rest of the world, its economic forecast for the Middle East and North Africa were revised upwards. Thanks to an uptick in oil production in places like Libya and Saudi Arabia, the IMF said it now expects growth of 5.5 per cent for the MENA region in 2012, 1.3 per cent above its April forecast.

Its prediction of a 3.7 per cent climb for the region in 2013 remained unchanged.

"In contrast with the broad trends, growth in the Middle East and North Africa will be stronger in 2012-13 relative to last year," the fund said in its quarterly revision of economic forecasts.

"Key oil exporters continue to boost oil production and domestic demand while activity in Libya is rebounding rapidly after the unrest in 2011." 


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