Economy

IMF Cuts Growth Forecast; US Carries the Developed World

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If it weren’t for a projected 0.5% increase in the outlook for U.S. economic growth, the forecast for 2014 global growth from the International Monetary Fund (IMF) would be even worse than its current forecast of 3.3%. That is down from a previous IMF forecast of 3.4% for 2014. The agency has also cut the forecast of 2015 global growth from 4.0% in its July outlook to 3.8%.

The IMF expects the developed economies as a group to grow by 1.8% in 2014, unchanged from the July revision of the World Economic Outlook. For 2015, developed economies are expected to grow by 2.3%, down 0.1% from the July forecast. Emerging economies are expected to grow by 4.4% in 2014 and 5% in 2015, down from 4.5% and 5.2%, respectively.

The U.S. economy is forecast to grow 2.2% in 2014 and 3.1% in 2015. Because of its sheer size (about $17.5 trillion in 2014), even that relatively small growth is enough to carry the developed world on its shoulders. The U.S. economy is larger than the economies of Japan, Germany, France, the United Kingdom and Italy combined. Only China’s economy (about $10 trillion) is even close.

The IMF forecasts China’s growth at 7.4% in 2014 and 7.1% in 2015. The second-largest developing economy is India, which is forecast to grow 5.6% in 2014 and 6.4% in 2015. India’s 2014 GDP is estimated at $2 trillion, a fifth of China’s.

The IMF warns of considerable downside risks to these latest projections: geopolitical risk, greed (the IMF calls this “financial excess” due to markets underpricing risks by not assessing correctly the uncertainties in the global outlook), lower growth in developing economies and secular stagnation combined with low potential growth. The IMF also warns about possible deflation in the euro area.

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