Monday, October 6, 2014

IMF says global recovery is accelerating

The International Monetary Fund said Tuesday the global recovery will gain strength this year, but it trimmed its growth forecast amid a sharp rise in Japan's sales tax and a slowdown in emerging markets.

An accelerating U.S. recovery will help the world economy grow 3.6% this year, the IMF said, up from 3% in 2013 but down slightly from its 3.7% projection in January. Growth will pick up to a 3.9% pace in 2015, the fund said in advance of the spring meetings of the IMF and World Bank in Washington this week.

"A recovery which was starting to take hold in October is becoming stronger but also broader," IMF chief economist Olivier Blanchard said at a press briefing Tuesday. But, he added, "the recovery remains uneven."

The IMF's 2014 growth forecast for the U.S. was unchanged at 2.8%. That is the highest among advanced economies, which the IMF said are driving the global expansion.

"A major impulse to global growth has come from the United States," the IMF said in its World Economic Outlook, adding that U.S. growth will pick up to 3% next year. The IMF cited more modest federal government spending cuts this year, higher household wealth, the recovering housing market and banks that are more willing to lend.

Forecasts for other regions:

• The eurozone economy recently began expanding following the Great Recession and is projected to grow 1.2% this year, up from the IMF's 1.1% forecast in January. Underpinning the modest upswing are stronger consumer and business spending in Germany and reduced government spending cuts across the euro area, the IMF said.Still, "growth is projected to remain weak and fragile" in countries beset with high government debt such as Italy and Spain.

And excessively low inflation throughout the euro area threatens to reverse the progress and could lead to deflation, or falling wages and prices, which prompts consumers to put off purchases and makes it more difficult to pay off debts.

"One reason to worry about Europe is deflation,! " Blanchard said, He urged the European Central Bank to adopt stimulus measures, such as negative short-term interest rates or bond purchases to lower long-term rates. "I think they should all be looked at," he said. "Sooner is better than later."

• Japan has experienced a turnaround after years of economic stagnation as a result of higher government spending and a massive bond-buying program to push down interest rates. But the country's consumption tax this month jumped to 8% from 5% and it's set to rise to 10% late next year. The IMF cut its 2014 growth forecast for the country to 1.4% from 1.7% in January.

• Emerging markets such as China, Brazil, India and Russia are expected to expand by 4.9% this year, up from 4.7% in 2013, and contribute more than two-thirds of global growth. But the IMF sliced its forecast by two-tenths of a percentage point since January, in part because the U.S. Federal Reserve's decision to gradually reduce its bond-buying stimulus program has pushed up U.S. interest rates and made emerging-market investments less attractive. The flight of foreign capital from the countries last year drove down their currencies and forced their central banks to raise interest rates, dampening growth.

"I think the we can expect the bumps we saw (last year) to happen again," Blanchard said.

China's growth is expected to slow to 7.5% this year from 7.7% in 2013. The IMF has urged the country to shift its economy toward more domestic consumption and less exports and business investment.

Russia's growth forecast was chopped to 1.3% from 1.9%. Foreign investors have fled the country following Russia's recent incursions into Ukraine which led to U.S. and European sanctions.

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