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IMF Cuts US, Russia Forecast

IMF Cuts US, Russia Forecast IMF Cuts US, Russia Forecast

Pointing to the strong dollar, the International Monetary Fund downgraded its forecast for the US economy, while outlook for Europe and Japan is strong in the fund's quarterly report.

The IMF predicted that the US economy will grow by a robust 3.1% in 2015 and 2016. Though that is still the fastest among major developed economies, it is nevertheless a downturn from their January forecast of 3.6% and 3.3% for the next two years respectively. In 2014, the American economy grew by 2.4%, Sputnik.

"Consumption — the main engine of growth — has benefited from steady job creation and income growth, lower oil prices, and improved consumer confidence," the fund said in its semi-annual report on World Economic Outlook.

The IMF's forecast for the global economy as a whole is that it will grow by 3.5% over the course of the year, which is consistent with its January forecast. The fund is more optimistic about 2016, raising its outlook to 3.8% from January's 3.7% prediction. The 19 countries that make up the eurozone – which saw only 0.9% growth last year – are now expected to see an economic expansion of 1.5% in 2015 and 1.6% in 2016. Both forecasts are an increase over January predictions of 1.2% and 1.4%.

The outlook is also looking better for Japan – whose economy actually shrank by 0.1% in 2014.  The fund expects to see growth of 1% this year and 1.2 % the next, up from 0.6% and 0.8% in January.

  Russia Economy

The IMF also downgraded its projection for the growth of the Russian economy in 2015 and 2016. The Russian economy is projected to shrink by 3.8 percent in 2015 and by 1.1 percent in 2016.

The fall in the Russian ruble will not offset the negative factors dragging on the country’s growth, including financial sanctions and lower oil prices, Reuters quoted Olivier Blanchard, the IMF’s chief economist, as saying.

The fund highlighted how high levels of debt and fragile banks, in addition to slowing emerging markets, could threaten sustained economic growth.

“A number of complex forces are shaping the prospects around the world,” said Olivier Blanchard, the IMF's chief economist. “Legacies of both the financial and the euro area crises — weak banks, and high levels of public, corporate and household debt — are still weighing on spending and growth in some countries. Low growth in turn makes deleveraging a slow process.”

Growth forecasts for Brazil and Mexico were also slashed for 2015, with a mix of uncertain politics, weak commodity prices and volatile exchange rates cited as factors.

  Growth Elsewhere

Growth for emerging markets is expected to be 4.3 percent next year, which would make it the fifth consecutive year that activity declined compared with the previous year. Some outliers were cited: India is projected to grow at 7.5 percent this year and next, which would put it ahead of China as the fastest-growing of the large emerging markets.

China, once a main driver of global growth, is now expected to grow at 6.8 percent in 2015 and 6.3 percent in 2016, with overheating property markets and questionable loans remaining concerns. Over all, the fund estimates global growth of 3.5 percent this year, increasing to 3.8 percent in 2016.

Emerging-market specialists have argued for some time that these economies are diverging. In one sector are the economies that are making economic reforms and benefiting from investor inflows, as in China, India, Indonesia and the Philippines, they say.

Then there are the growth laggards, like Brazil and Russia, which have been hampered by governance problems and commodity downturns, they say.

Financialtribune.com