IMF cuts global growth forecast; Emerging economies to maintain robust growth
Europe’s failure might become a catastrophe for the world economy, according to IMF. Richer countries will grow at even slower pace than previously predicted by IMF. Japanese economy is poised to shrink by 0.5% this year. Drivers of the world economy would be the emerging economies.
The world economy will expand 4 percent this year and next, the IMF said today, compared with June forecasts of 4.3 percent in 2011 and of 4.5 percent in 2012. The U.S. growth projection for 2011 was lowered to 1.5 percent this year from 2.5 percent in June.
“Global activity has weakened and become more uneven, confidence has fallen sharply recently, and downside risks are growing,” the IMF said in its World Economic Outlook report today. In Europe “leaders must stand by their commitments to do whatever it takes to preserve trust in national policies and the euro” while in the U.S. “deep political divisions leave the course of U.S. policy highly uncertain.”
IMF chief Christine Lagarde last week urged global policy makers to find “collective resolve” as investors worry Greece may default and European banks will be forced to take losses on bonds sold by the region’s most indebted countries. Under an alternative to its growth scenario, the institution predicts the U.S. and Europe could fall back into recession, with global output next year 3 percentage points less than now forecast.
Richer nations will grow 1.6 percent this year instead of the 2.2 percent expected in June, and 1.9 percent next year instead of 2.6 percent, the IMF said.
Japan was the only Group of Seven economy to have its forecast raised for this year, with the IMF now predicting a 0.5 percent contraction, compared with a 0.7 percent decline in June. Growth in 2012 should reach 2.3 percent, 0.6 percentage point less than in June.
In the euro area, where the IMF cut its prediction to 1.6 percent from 2 percent this year and to 1.1 percent from 1.7 percent next year, injecting capital into banks and restructuring or closing down others is “essential,” the IMF said.