World economic growth will struggle to accelerate this year as a U.S. expansion weakens, China’s economy levels off and Europe’s recession deepens, the International Monetary Fund said.
Global growth will be 3.1% this year, unchanged from the 2012 rate, and less than the 3.3% forecast in April, the Washington-based fund said Tuesday, trimming its prediction for this year a fifth consecutive time. The IMF reduced its 2013 projection for the U.S. to 1.7% growth from 1.9% in April, while next year’s outlook was trimmed to 2.7% from 3% initially reported in April.
“Downside risks to global growth prospects still dominate,” the IMF said in an update to its World Economic Outlook. It cited “the possibility of a longer growth slowdown in emerging market economies, especially given risks of lower potential growth, slowing credit and possibly tighter financial conditions if the anticipated unwinding of monetary policy stimulus in the U.S. leads to sustained capital flow reversals.”
The fund urged central banks in wealthy nations facing low inflation and economic slack to keep injecting stimulus until recovery is entrenched, saying rising longer-term interest rates have hurt emerging markets the most. The developing economies need to be alert for financial risks if the “anticipated unwinding” of the U.S. Federal Reserve’s bond-buying program reverses capital flows, the IMF said.
The IMF projected China’s growth will be 7.8% in 2013, down from an 8% April projection, and the 17-country eurozone will shrink 0.6% as the economies of France, Italy and Spain contract. The IMF projected a 0.3% contraction for the eurozone in April.
The IMF report said growth will weaken in emerging markets including China as external demand growth has slowed and advanced economy longer-term interest rate volatility has risen. The U.S. is held back by fiscal contraction and Europe will remain mired in recession on the heels of its debt crisis, according to the report.
Plans for record monetary easing and increased private demand boost the fund’s improved forecasts for Japan, the world’s third-largest economy, upgraded to 2% growth this year from a 1.6% projection in April.
The forecast for global growth next year is 3.8%, down from 4% in the IMF’s April projections.
In the report, the fund said advanced economies must continue to avert risks — in the U.S., by making timely increases to the debt ceiling and in Europe, by continuing a “do-what-it-takes” approach to mitigate financial fragmentation.
