9 Oct 2012

IMF cuts global growth forecast

2:19 pm on 9 October 2012

The International Monetary Fund has cut its global growth forecast for the second time since April.

For 2012, the IMF now expects global output to grow just 3.3%, down from its July estimate of 3.5%, making it the slowest year of growth since 2009.

It predicts only a modest pick-up next year to 3.6%, below its July estimate of 3.9%, Reuters reports.

In its latest World Economic Outlook, the fund said global growth is too weak to bring down unemployment and what little momentum exists is coming primarily from central banks.

It said a key issue is whether the global economy is hitting another bout of turbulence or whether the current slowdown has a more lasting component.

The IMF said the answer depends on whether European and United States policymakers deal proactively with their major short-term economic challenges.

For the US, the IMF said its urgent policy priorities should include avoiding a so-called "fiscal cliff" from the expected tax increases and spending cuts, raising the government borrowing limit and agreeing on a credible plan to reduce the deficit.

It said the fiscal cliff at the extreme would amount to a fiscal withdrawal of more than 4% of gross domestic product (GDP) in 2013, and economic growth would stall.

In the euro area, it said resolving the crisis was the highest priority and that would require progress toward banking and fiscal union.

China's economic growth is expected to weaken to 7.8% this year, the IMF said, a lower rate than the 8% previously forecast. The world's second-biggest economy would grow 8.2% next year.

Emerging markets are still expected to grow four times as fast as advanced economies, but the IMF cut its estimates for India and Brazil, with the latter now seen growing slower than the US this year.

The IMF predicted "less buoyant" growth in the near- and medium-term for Asia as a whole.