Economy

IMF Lowers Global Growth Outlook, Cuts US Projection by 20%

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International Monetary Fund
The International Monetary Fund (IMF) on Thursday cut its 2015 global GDP growth forecast from an April estimate of 3.5% to a new level of 3.3%. Weak first-quarter performance, especially in the United States, combined with increasing risks to financial markets in China and to financial markets from Greece are the primary factors behind the lower estimates.

The IMF projection for global economic growth in 2016 was left unchanged at 3.8%. The stronger outlook for next year is based on 2.4% growth in the developed countries — up from 2.1% projected for this year — and 4.7% growth in emerging economies — up from projected 4.2% growth of this year.

The unexpected first-quarter weakness in the U.S. economy is viewed as temporary by the IMF, and the underlying drivers for consumption and investment in the U.S. remain strong. Those drivers are wage growth, labor market conditions, easy financial conditions, lower fuel prices and a strengthening housing market, according to the IMF. The U.S. growth forecast was cut from 3.0% to 2.5% for 2015 and the 2016 forecast calls for growth of 3.0%, down 0.1% from the April forecast.

In Europe, the IMF sees the eurozone as “broadly on track.” Growth projections for many countries have been revised upward (the United Kingdom is a notable exception), and of Greece the IMF says, “[U]nfolding developments are likely to take a much heavier toll on activity relative to earlier expectations.” Japan’s growth estimate was cut by 0.2% to 0.8% for 2015.

China’s current stock market plunge is a concern, but not a major one. The IMF expects the country to rebalance without affecting the overall outlook for 2015. The IMF did not change its growth estimates of 6.8% in 2015 and 6.3% in 2016.

Russia is expected to see its economy contract by 3.4% in 2015, but return to 0.2% growth in 2016. Those numbers represent an increase of 0.4% in the IMF’s projection for this year and 1.3% for 2016.

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The IMF called for advanced economies to maintain accommodative monetary policy to “support economic activity and lift inflation back to target.” For countries with room for more borrowing, the agency urges increased infrastructure investment; for countries with high debt, “fiscal consolidation needs to strike an appropriate balance between debt reduction and imposing a drag on economic activity.”

For emerging economies, the IMF urges demand support to the extent possible: “[D]emand support should come from fiscal policy rebalancing aimed at boosting longer-run growth, through tax reform and spending reprioritization.”

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