IMF cuts global economic outlook to 3.3%

The International Monetary Fund (IMF) has cut marginally its global economic forecast to 3.3 percent for 2014, down by 0.1 percent from its July forecast.

Despite major economies like the United States and the United Kingdom achieving a decent growth, high public debt in economies such as Japan’s raises major macroeconomic and fiscal challenges, the IMF has noted in its latest World Economic Outlook report.

“The weaker than expected growth outlook for 2014 reflects setbacks to economic activity in the advanced economies during the first half of 2014, and a less optimistic outlook for several emerging market economies,” the report said.

Addressing the media ahead of the annual IMF and World Bank meetings in Washington, DC, Olivier Blanchard, IMF’s Chief Economist, said the global economic outlook remains weak and uneven.

The Bretton Woods institution also cut its outlook for 2015 by 0.5 percent from July’s forecast to 3.8 percent.

“Looking around the world, economies are subject to two main forces. One from the past: countries have to deal with the legacies of the financial crisis, ranging from debt overhangs to high unemployment. One from the future, or more accurately, the anticipated future: potential rates are being revised down and these worse prospects are affecting confidence, demand and growth today,” Mr. Blanchard said.

He added that because the forces play in different countries to different degrees, economic revolutions are becoming more differentiated.

Affecting the global outlook is the slowdown in growth in the Eurozone, which nearly stalled earlier in the year. “While this reflects in part temporary factors, both legacies, primarily in the south, and low potential growth, nearly everywhere, are playing a role in slowing down the recovery,” Mr. Blanchard said.

Growth prospects vary in advanced economies

In advanced economies, growth is forecast to rise to 1.8 percent in 2014 and 2.3 percent in 2015. Much of the projected strengthening in activity reflects faster growth in the United States following a temporary setback in the first quarter of this year, the report said.

Employment growth, the report said, has been strong, and household balance sheets have improved amid favorable financial conditions and a recovering housing market.

According to the report, “In the euro area, recent growth disappointments highlight lingering fragilities. A gradual, but weak recovery is projected to take hold, supported by a sharp compression in interest spreads for stressed economies and record-low long-term interest rates in core euro area economies.”

While ruling out the risks posed by the Ukranian and Middle East crisis on its current outlook, the IMF maintained that “clearly, the risk that they do so in the future is there and could affect the world economy in a major way.

“Heightened geopolitical risks could prove more persistent, and they could also worsen. The result could be sharply higher fuel prices, trade disruptions, and further economic distress,” the report said.