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IMF cuts Global Growth Forecast, citing ‘weak and uneven recovery’

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(Image: IMF CEO Christine Lagarde)

(Image: IMF CEO Christine Lagarde)

The International Monetary Fund (IMF) on Tuesday cut its global economic growth forecasts for the third time in 2014, due to even global recovery and drawback risks that have boomed.

In the updates economic outlook, the Washington-based organization forecasts that the global economy would grow by 3.3 percent in 2014 and 3.8 percent in 2015, which is 0.1 percent and 0.2 percent from its July’s estimates respectively.

The growth forecasts was trimmed "largely due to weaker-than- expected global activity in the first half of 2014," the IMF said in its World Economic Outlook, further adding that uneven global economy continues in spite of delays, along with the pace of recovery that becomes more country specific.

The IMF forecasts growth in advanced economies to be 1.8 percent in 2014, the same with its figure in July, however brought down the 2015 growth rate to 2.3 percent from July's 2.4 percent.

Growth in developing markets was expected to achieve 4.4 percent in 2014 and 5 percent in 2015, and both were somewhat changed down from July's estimate. Indeed with the downsize, developing market and developing economies would keep on representing the lion's share of global growth, said the IMF.

IMF kept its forecast for China unaltered at 7.4 percent in 2014 and 7.1 percent in 2015, yet lower than its April forecasts. "China is maintaining high growth, and its rebalancing is likely to imply slightly lower growth, but this must be seen as a healthy development," said IMF chief economist Olivier Blanchard at a press conference here on Tuesday.

"The recovery continues, but it is weak and uneven," said Blanchard, stating that world development is unremarkable and a bit more terrible than forecast in July, and the growth of global economy has gotten to be more separated – country specific.

The U.S. and the UK are expected to attain solid growth rebound, despite the fact that their potential growth is currently lower than in the early 2000s.

The IMF expected the U.S. economy to increase by 2.2 percent in 2014, up 0.5 percentage point from its July figure. The world's largest economy will manage growth momentum in 2015 and increase at a rate of 3.1 percent, it said.

The euro zone will probably continue on a path of frail recovery however at a much slower pace. Its growth is expected to average 0.8 percent in 2014 and 1.3 percent in 2015, weaker than July's figures.

China and India are set on a relatively high growth path, separately at 7.4 percent and 5.6 percent in 2014, while Latin America and Caribbean economies are predicted to develop at a rate of 1.3 percent in 2014, growth for Russia will slow down to 0.2 percent in 2014, because of geopolitical pressures and sanctions.

Uneven recovery here was because of the interaction of two major forces - the emergency legacies demonstrating harder to resolve than anticipated and lower potential growth, operating to diverse degrees in different nations, said Blanchard. In the midst of the uneven recovery, drawback risks had expanded compared to July, said the IMF in the report.

Commodity market and economic activity will be greatly affected by geopolitical tensions. United States will continue to experience ‘‘unexpected bumps’’ arising from monetary policy standardization. Extended low inflation too has proved to be risky to economic activity in some advances economies, the Euro zone specifically. Real estate market revision in China is posing a certain challenge to its economic rebalancing, furthermore influencing its growth.

Advanced and emerging markets will face lower potential development, mostly because of aging population and feeble development in total factor productivity.

The IMF suggested that in order to fight against low inflation in advanced economies, they must maintain an accommodative monetary strategy. Furthermore by promoting public investment and structural reforms along with a macro prudential policy will help support potential development and keep up monetary stability for both the kind of economies.

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