IMF downgrades global growth forecast

IMF downgrades global growth forecast

Posted July 17, 2012 10:05:03

The International Monetary Fund has cut its forecast for global growth to the lowest level in three years, saying the world’s economic recovery remains at risk.

In its World Economic Outlook update, the IMF says it expects the world economy to grow 3.5 per cent this year – that is 0.1 per cent lower than its forecast three months ago.

It is forecasting global growth of 3.9 per cent next year, down from a previous 4.1 per cent prediction.

However, the fund has also warned that a sharper downturn is possible if Europe and the United States fail to act.

The IMF’s Jose Vinal says he is heartened that Europe finally seems determined to overcome its economic crisis.

“Well I think that the largest single risk to global growth is associated with a potential escalation of the crisis in Europe, in the Euro area,” he warned.

“And this is why it’s very important that the efforts that had been put in place in recent weeks bear fruit.”

Among the biggest revisions to the IMF’s forecasts was a 0.6 per cent cut to Britain’s expected growth this year and next, taking the Olympic host down to an expected economic expansion of just 0.2 per cent this year and 1.4 per cent next year.

Europe is expected to experience a 0.3 per cent economic contraction this year, largely led by recessions in the big economies of Italy and Spain.

Among the emerging economies, China and India’s growth forecasts have both been revised down, but the two countries are expected to grow at 8 and 6.1 per cent respectively this year.

The Federal Treasurer Wayne Swan says the International Monetary Fund’s world economic outlook points to ongoing uncertainty in the global economy.

However, he remains confident China will continue growing strongly, saying the Chinese government engineered the slowdown and would act to stimulate growth if required.

“There were inflationary pressures in China and also challenges in their property sector,” he commented.

“They deliberately slowed their economy to deal with those challenges, and also to fundamentally reform their economy and to move to more domestic consumption and away from their export led model.”

Wayne Swan says the weakness in Europe continues to pose the most significant risk to the global recovery.

He says it is critical that European leaders implement a range of reforms to boost growth and restore fiscal sustainability.

Topics:business-economics-and-finance, economic-trends, australia, china, european-union, india, united-kingdom

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