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Oct 7, 2014 10:32 AM

IMF trims forecast for global economic growth

The Associated Press

WASHINGTON (AP) The International Monetary Fund 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 Tuesday the global economy will grow 3.3 percent this year, one-tenth of a point below what it forecast in July. World growth should then pick up to 3.8 percent in 2015, two-tenths of a point lower than its previous estimate, the IMF said in the latest installment of its World Economic Outlook.

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

Still, the global lending organization warned that the U.S., 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.

"The recovery continues, but it is weak and it is uneven," Olivier Blanchard, chief economist at the IMF, said at a press conference.

Blanchard warned that low interest rates have made investors "too complacent" in the advanced economies, particularly about the uncertainty around interest rates in the U.S. That could trigger sharp falls in financial markets, especially if rates rise faster than expected.

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 percent this year, down from 1.1 percent in its July forecast. It lowered its 2015 projection to 1.3 percent from 1.5 percent.

Japan will grow just 0.9 percent in 2014, the fund said, down from the 1.6 percent pace the IMF previously projected. It sees Japan's growth slipping to 0.8 percent in 2015, down from its July estimate of 1 percent. 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 percent this year and 7.1 percent 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 percent in 2014, down from a July estimate of 2 percent. Growth will be 2.2 percent in 2015, down from 2.6 percent. The figures largely reflect weakness in Brazil.

The report is being released ahead of this weekend's annual joint meetings of the IMF and World Bank in Washington.

The IMF urged the United States, 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 U.S. and Europe should benefit from fewer tax increases and spending cuts in 2014 than in previous years. The report predicts that the U.S. Federal Reserve will hold off raising interest rates until the middle of next year.

But aging populations and lower productivity threaten to lower long-run growth in advanced economies, including the U.S. 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 policymakers need to pursue bold policies to ensure that the "new mediocre" doesn't become permanent.


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