IMF cuts global growth forecast again

A construction site in Beijing. The IMF sees the pullback in China's heated construction and real estate sectors as a "healthy adjustment".
A construction site in Beijing. The IMF sees the pullback in China's heated construction and real estate sectors as a "healthy adjustment".PHOTO: REUTERS

It takes into account slowdown in emerging markets, short-term setbacks in US economy

The International Monetary Fund (IMF) has cut its global economic growth outlook for the second time this year.

It cited a slowdown in emerging markets and first-quarter setbacks for the United States economy, which will be hard to counter even as other advanced economies inch towards recovery.

The latest World Economic Outlook, out yesterday, forecasts 3.3 per cent growth for the year, down from April's forecast of 3.5 per cent.

If the new estimate holds true, it would mean slightly slower world output this year than last year, which saw 3.4 per cent growth.

The drag on emerging-market economies will continue as commodity prices stay low, structural bottlenecks persist and the China economy slows, the IMF said.

  • LOWER PROJECTIONS

  • 3.8%

    Before January

    3.5%

    January and April

    3.3%

    July

It left its growth forecast for China unchanged at 6.8 per cent, but with less certainty, it said.

The inflation and bursting of the stock market bubble came "very quickly", and would have a limited effect on spending, said IMF research director Olivier Blanchard at a press briefing yesterday, adding that China's capital markets are less tied to the real economy than those in nations such as the US.

China's slowdown is also driven largely by a pullback in the construction and real estate sectors, which is a healthy adjustment, he said.

A stronger factor in the decision to pare expectations was a surprise US contraction in the first quarter, the IMF said. But this was due to one-off setbacks such as unexpectedly harsh weather and lower oil investments, it said, flagging a return to growth later in the year.

Meanwhile, the euro zone recovery is "on track", and contagion from the Greek government debt crisis is unlikely, the IMF said.

"The stress tests of the past 10 days reassure us that if things go badly in Greece, the rest of the world will probably survive quite well," said Mr Blanchard.

The IMF expects advanced economies in general to continue benefiting from "lower fuel prices, improving confidence and labour market conditions" this year.

"Easy financial conditions" remain a boon, it said, referring to accommodative monetary policies adopted in Europe, the US and Japan to stoke growth.

The IMF is sticking with its forecast for 3.8 per cent growth next year, but warned of increased risk from "financial market volatility and disruptive asset price shifts".

"They may materialise when the Fed exits the zero lower bound," it said. It was referring to the expected US Federal Reserve move to lift interest rates. Given ultra-low rates, such a move could trigger big capital outflows from emerging markets.

On Tuesday, the IMF repeated its call for the Fed to delay hiking benchmark rates until next year.

A version of this article appeared in the print edition of The Straits Times on July 10, 2015, with the headline 'LOWER PROJECTIONS IMF cuts global growth forecast again'. Print Edition | Subscribe