IMF cuts global growth hopes on weak data

Ben Southwood
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THE IMF slashed its forecasts for world growth yesterday, on worries that gloomy data suggests a sustained slump in the global economy.

World output will expand just 3.3 per cent during 2012, the international body said, down from its July estimate of 3.5 per cent.

And next year will see growth rebounding to only 3.6 per cent, blow the earlier forecast of 3.9 per cent expansion in 2013.

“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,” the IMF report says.

“The answer depends on whether European and US policymakers deal proactively with their major short-term economic challenges,” it adds.

“Familiar” forces of fiscal consolidation and fragile financial firms were partly to blame, the IMF claimed, but policy worries were also a major cause of stagnation.

“More seems to be at work...than these [macroeconomic] forces – namely, a general feeling of uncertainty,” said IMF chief economist Olivier Blanchard.

“Worries about the ability of European policymakers to control the euro crisis and worries about the failure to date of US policymakers to agree on a fiscal plan surely play an important role, but one that is hard to nail down,” Blanchard went on.

To overcome the dangers of uncertainty the IMF calls for firm decisions to be taken. In the US policymakers must focus on both reining in the deficit and avoiding the fiscal cliff, it says, while Eurozone policymakers should make progress toward banking and fiscal union in order to resolve the debt crisis.

The only glimmer of hope was for emerging markets – though the IMF cut its forecasts for Brazil and India, emerging markets were still expected to grow four times quicker than advanced economies.