IMF Lowers Global Growth Outlook Yet Again

In the World Economic Outlook released on July 9, 2013, the International Monetary Fund (IMF) has revised its forecast for global growth for the fifth time since early last year. The body revised its 2013 forecast for global growth downwards to 3.1% from that of 3.3% projected in April 2013. It also lowered its forecast for 2014 to 3.8% from its earlier prediction of 4% expansion. This was driven by weaker domestic demand and slower growth in several key emerging market economies, as well as by a more protracted recession in the Euro zone.

In the report, the IMF has stated that while old risks remain, newer ones have emerged. This includes the possibility of a longer growth slowdown in emerging market economies, especially given the risks of lower potential growth, slowing credit and possibly tighter financial conditions if the anticipated unwinding of monetary policy stimulus in the US leads to sustained capital flow reversals.

Let us now look at the scenario in individual countries and regions. Growth in the United States is projected to rise from 1.75% in 2013 to 2.75% in 2014. The projections assume that the sequester will remain in place until 2014, longer than previously projected, although the pace of fiscal consolidation will still remain slow.

The projections for the emerging markets have been revised downwards. IMF cut its 2013 growth forecast for developing countries to 5%, including a lower forecast for Brazil, Russia, India, China and South Africa (BRICS). The report has clearly mentioned that the slowdown in China is a big risk. This is because the economy is witnessing a shift to consumption-led growth, and any slowdown could in its consumption patterns could hit commodity exporters strongly.

On the Asian front, the forecast for Japan has been raised. The economy is expected to grow at 2% in 2013 backed by monetary stimulus, which has in turn boosted confidence and private demand. It was previously predicted that Japan would grow by 1.6% this year.

Speaking of India, IMF has predicted a growth of 5.6% for 2013 and 6.3% for 2014, revised downward from 5.8% and 6.4% respectively in April 2013. It does not augur well for India, which is already reeling under various macro-economic problems. This should act as an alarm for the Indian policymakers, who need to take further policy actions to spur growth in the economy. Failing this, we may see further flight of much-needed foreign money from the Indian shores.