IMF shaves forecast on economic growth

ISTANBUL / TOKYO

The IMF’s latest World Economic Outlook, which was presented at a meeting in Istanbul yesterday, forecast the slowest year of global growth since 2009 with a mere 3.3 percent, warning U.S. and European policymakers that failure to fix their economic ills would prolong the slump.

Global growth in advanced economies is too weak to bring down unemployment and what little momentum exists comes primarily from central banks, the International Monetary Fund said in its World Economic Outlook, released ahead of its twice-yearly meeting, which will be held in Tokyo later this week.

“A key issue is whether the global economy is just hitting another bout of turbulence in what was always expected to be a slow and bumpy recovery, or whether the current slowdown has a more lasting component,” it said.

‘Fiscal cliff’

Ahead of the Tokyo meeting, policymakers have flagged the U.S. “fiscal cliff” - government spending cuts and tax rises due to take affect early in 2013 - and resolving the eurozone debt crisis as the top issues facing the global economy, Reuters reported yesterday. Reuters quoted U.S. Treasury Secretary Timothy Geithner as saying yesterday that reforms in Europe “could take years to bear fruit.”

“In these periods of time, where people were very worried about the risk of collapse in Europe, you saw an impact on financial markets and confidence that was very, very substantial,” he told a meeting of Indian and U.S. business leaders in New Delhi. “Europe still has a very hard road ahead.”

His comments echoed those of Canadian Finance Minister Jim Flaherty, who last week said Europe’s debt crisis was “a clear and present danger.”

The IMF forecast in its latest health check on the world economy that global output in 2012 would grow just 3.3 percent, down from a July estimate of 3.5 percent. It predicted only a modest pickup next year to 3.6 percent, below its July estimate of 3.9 percent. It projected U.S. growth would be a little more than 2 percent this year and next, but forecast a contraction in the euro area this year by 0.4 percent and modest growth in 2013 of 0.2 percent.

Emerging markets are still expected to grow four times as fast as advanced economies, but the IMF has taken a sharp knife to its estimates for India and Brazil, with the latter seen to be growing slower than the United States this year. It also cut its expectations for China in 2012 and 2013.