World Economy

IMF Lowers Global Growth, Forecast

IMF Lowers  Global Growth, ForecastIMF Lowers  Global Growth, Forecast

The International Monetary Fund 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% this year, 0.2 percentage point below what it predicted in April. Growth should speed up to 3.8% next year, it said, unchanged from earlier forecasts, Reuters reported.

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% this year–it lowered the US growth forecast last month from 3.1% in April. The IMF also said US economic sluggishness had spilled over to Canada and Mexico.

Eurozone to Rise

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

"The stress tests of the last 10 days (around events in Greece) reassure us and make us think that if things go badly in Greece ... the rest of the world would probably survive quite well," Olivier Blanchard, IMF's chief economist, said.

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

Chinese stock markets have tumbled by more than 30% 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 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 predictions, though it expects geopolitical tensions tied to Russia and the Middle East to calm down next year.

India's Growth Unchanged

The International Monetary Fund has retained its forecast for India's growth even as it marginally lowered the global growth target for the year in its latest update of the world economy. Indian economy is forecast to grow 7.5% in 2015, the IMF said in its update of the World Economic Outlook, retaining its April forecast.

Despite the upheavals in financial markets, China escaped a cut and is pegged to grow 6.8% this year, significantly lower than India. Global economy is pegged to grow 3.3% in 2015, marginally lower than in 2014, and 0.2 percentage point below the earlier forecast.

"A setback to activity in the first quarter of 2015, mostly in North America, has resulted in a small downward revision to global growth for 2015 relative to the April 2015 World Economic Outlook (WEO)," the IMF said.

However, it said that drivers for acceleration in growth are intact in the developed world. It expects global growth to pick up in 2016 to 3.8%, with India retaining the pole position with a 7.5% growth. In the current year, though, it sees some significant downside risk for the Indian economy.

It called for advanced economies to continue with the accommodative monetary policy to support economic activity and lift inflation back to target while urging others with fiscal space to utilize the room to push growth. "In a number of countries with fiscal space, the near-term fiscal stance should be eased, especially through increased infrastructure investment," the IMF said.