Wednesday, January 23, 2013
IMF predicts weak global growth in 2013, rebound next year
An unexpectedly stubborn euro zone recession and weakness in Japan will weigh on global economic growth this year before a rebound in 2014 that should deliver the fastest expansion since 2010, the International Monetary Fund said yesterday.
The IMF trimmed its 2013 forecast for global growth to 3.5 percent from the 3.6 percent it projected in October, but said it looked for a 4.1 percent expansion in 2014 if a recovery takes a firm hold in the euro zone. It said the world economy grew 3.2 percent last year.
Healthy global growth rates of above 4 percent were last seen in 2010, when output expanded 5.1 percent as the global financial crisis eased.
"Optimism is in the air, particularly in financial markets, and some cautious optimism may indeed be justified," IMF chief economist Olivier Blanchard said at a news conference.
"Comparing to where we were at the same time last year, acute risks have decreased," he said, noting that Washington had largely dodged its so-called "fiscal cliff" and that policy actions in Europe had helped calm the region's debt crisis.
Still, the IMF warned that big downside risks remained, including the possibility the euro zone's crisis could flare anew and the US Congress could tighten the budget excessively.
"We may have avoided the cliffs, but we still face high mountains," Blanchard said.
The United States is due to run out of room under a self-imposed borrowing limit of $16.4 trillion sometime between mid-February and early March, and it also faces steep automatic spending cuts on March 1 absent action.
Republicans want to use the need to raise the debt ceiling to ensure government spending is cut. They have signaled a willingness to approve a nearly four-month extension of the debt limit that would defuse immediate fears of a damaging US debt default but keep a longer-term threat alive.
The IMF said the US economy was set to expand 2 percent this year, with growth rising above trend in the second half of this year and reaching 3 percent in 2014.
"The priority is to avoid excessive fiscal consolidation in the short term, promptly raising the debt ceiling, and agree on a credible medium-term fiscal consolidation plan, focused on entitlement and tax reform," it said.
The IMF trimmed its 2013 forecast for global growth to 3.5 percent from the 3.6 percent it projected in October, but said it looked for a 4.1 percent expansion in 2014 if a recovery takes a firm hold in the euro zone. It said the world economy grew 3.2 percent last year.
Healthy global growth rates of above 4 percent were last seen in 2010, when output expanded 5.1 percent as the global financial crisis eased.
"Optimism is in the air, particularly in financial markets, and some cautious optimism may indeed be justified," IMF chief economist Olivier Blanchard said at a news conference.
"Comparing to where we were at the same time last year, acute risks have decreased," he said, noting that Washington had largely dodged its so-called "fiscal cliff" and that policy actions in Europe had helped calm the region's debt crisis.
Still, the IMF warned that big downside risks remained, including the possibility the euro zone's crisis could flare anew and the US Congress could tighten the budget excessively.
"We may have avoided the cliffs, but we still face high mountains," Blanchard said.
The United States is due to run out of room under a self-imposed borrowing limit of $16.4 trillion sometime between mid-February and early March, and it also faces steep automatic spending cuts on March 1 absent action.
Republicans want to use the need to raise the debt ceiling to ensure government spending is cut. They have signaled a willingness to approve a nearly four-month extension of the debt limit that would defuse immediate fears of a damaging US debt default but keep a longer-term threat alive.
The IMF said the US economy was set to expand 2 percent this year, with growth rising above trend in the second half of this year and reaching 3 percent in 2014.
"The priority is to avoid excessive fiscal consolidation in the short term, promptly raising the debt ceiling, and agree on a credible medium-term fiscal consolidation plan, focused on entitlement and tax reform," it said.
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