IMF cuts 2014 global forecast after slowdowns in China, U.S.

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Employees prepare to move a tram's front panel in Hong Kong on July 15, 2014. Employees prepare to move a tram's front panel in Hong Kong on July 15, 2014.
The International Monetary Fund lowered its outlook for global growth this year as expansions weaken from China to the U.S. and military conflicts raise the risk of a surge in oil prices.
The world economy will advance 3.4 percent in 2014, the IMF said, less than its 3.6 percent prediction in April and stronger than last year’s 3.2 percent. Next year growth will be 4 percent, compared with an April forecast for 3.9 percent, the fund said.
“Global growth could be weaker for longer, given the lack of robust momentum in advanced economies” even as interest rates stay low, the IMF said in an update to its World Economic Outlook report. “Monetary policy should thus remain accommodative in all major advanced economies.”
The IMF report reflected a world rattled by geopolitical risks that have risen since April, including the potential for “sharply higher oil prices” because of recent Middle East unrest.
Growth in emerging markets is projected to be 4.6 percent this year, compared with an April forecast for 4.9 percent, the IMF said.
China’s economy is seen growing 7.4 percent this year, less than the 7.5 percent forecast in April, the IMF said. Next year, growth in the world’s second-largest economy with slow further, to 7.1 percent, the Washington-based fund said, less than its forecast in April for 7.3 percent growth.
Russia’s slump
Among developing economies, the biggest reduction in forecasts was for Russia’s growth, which was downgraded to 0.2 percent from 1.3 estimated previously amid capital flight caused by its involvement in the conflict in Ukraine.

IMF chief economist Olivier Blanchard.
The IMF’s Russia forecasts exclude the effects of recent sanctions the U.S. has imposed on the country and don’t take into account any that the European Union might take, IMF chief economist Olivier Blanchard said at a press conference in Mexico City today. “These sanctions could probably further decrease the growth rate of Russia,” he said.
In Japan, the economy’s projected 1.6 percent advance this year may be followed by 1.1 percent from in 2015, “mostly due to the planned unwinding of fiscal stimulus,” the IMF said.
In the 18-country euro region, Italy and France were cut while Spain was revised higher to 1.2 percent, up from 0.9 percent.
U.S. slowdown
Most of the downgrade for this year in developed economies was due to the U.S., which was cut to 1.7 percent from an April prediction of 2.8 percent because of a first-quarter contraction. The forecast for 2015 was unchanged at 3 percent. The IMF issued its U.S. forecasts yesterday.
In prepared remarks, Blanchard said the U.S. economy is forecast to grow 3 percent to 3.25 percent for the rest of the year. He indicated the fund agrees with Federal Reserve plans to wind down stimulus.
“The current plans, namely the end of tapering later this year and increases in the policy rate from the middle of next year, are appropriate,” Blanchard said. “But the timing of the increase in the policy rate may have to be adjusted.”
Blanchard also addressed concerns about the potential for excessive risk taking associated with extended periods of low interest rates.
“We agree that, in some financial markets, valuations appear perhaps optimistic,” Blanchard said. “But, overall, we do not see a systemic threat to financial stability, mainly because of lower leverage in both banks and, to the extent we can measure it, in non-banks as well.”

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