IMF cuts global growth forecasts

With uncertainty looming over Greece, China and US Federal Reserve’s prospective rate hike, International Monetary Fund lowers its global growth forecast

Photo by: Reuters
Photo by: Reuters

Updated Jul 28, 2015

The International Monetary Fund (IMF) on Thursday trimmed its forecast for global economic growth for this year to take into account the impact of recent weakness in the United States.

But the global financial institution said growth prospects for next year remain undimmed, despite Greece's debt crisis and recent volatility in Chinese financial markets.

In an update to its World Economic Outlook report, the IMF said the global economy should expand 3.3 percent this year, 0.2 percentage point below what it predicted in April. Growth should speed up to 3.8 percent next year, it said, unchanged from earlier forecasts.

The IMF pinned much of the blame for the lower growth forecast on the United States. The US economy contracted in the first quarter, hurt by unusually heavy snowfalls, a resurgent dollar and disruptions at West Coast ports.

The IMF said it expected the US economy to grow 2.5 percent this year - it lowered the US growth forecast last month from 3.1 percent in April. The IMF also said US economic sluggishness had spilled over to Canada and Mexico.

"(But) the unexpected weakness in North America ... is likely to prove a temporary setback," the IMF wrote in the report.

The IMF also maintained its forecasts for a pickup in growth in the eurozone, despite Greece moving ever closer to the edge of default and an exit from the currency bloc as it races to find a last-minute third bailout.

"Developments in Greece have, so far, not resulted in any significant contagion," the IMF said. "Timely policy action should help manage such risks if they were to materialize."

In developing economies, the IMF said growth had been dampened by lower commodity prices as well as tighter financial conditions tied to the economic rebalancing in China and geopolitical factors.

Chinese stock markets have tumbled by more than 30 percent over the last month, prompting regulators to impose heavy-handed intervention to stem the rout.

The IMF said the market crash suggests China could face greater difficulties as it tries to move from an investment-led economic growth model to one focused on domestic consumption.

The Fund also repeated its warning that asset price shifts and financial market volatility could disrupt its predictions, though it expects the economic situation in Russia and the Middle East to calm down next year.