In a periodic update to its economic projections, the fund said Tuesday that it expected global growth of about 3.3 percent this year and 4 percent in 2014. That is a reduction of 0.2 percentage point since its January estimate for 2013; it did not change its estimate for next year’s growth.
Still, the report underscored that financial conditions have improved markedly since last year, in no small part because of aggressive monetary easing undertaken by the Federal Reserve, the Bank of Japan and the European Central Bank.
Recession continues to afflict Europe, and the world still struggles with high unemployment, but risks to the downside — in particular from the threat of a country’s leaving the euro zone and from fiscal policy uncertainty in the United States — have faded.
“Global prospects have improved again but the road to recovery in the advanced economies will remain bumpy,” said the report, called the World Economic Outlook. “Policy makers cannot afford to relax their efforts.”
The report again focuses in no small part on the economic troubles emanating from Europe. The fund cut its projections of current-year growth for the euro zone economies of France, Italy and Spain, as well as for Britain, which has also carried out austerity policies and entered a period of economic contraction.
I.M.F. officials have urged stronger European economies with lower borrowing costs, like Germany, to do more to foster growth across the entire region and to move more aggressively to finish a cross-border banking union to shore up investor confidence. The fund and many international economic officials, including Treasury Secretary Jacob J. Lew, are expected to press Europe on its plans for growth again this week.
“Policy should use all prudent measures to support sluggish demand,” the report said. “However, the risks related to high sovereign debt limit the fiscal policy room to maneuver. There is no silver bullet to address all the concerns about demand and debt.”
Still, officials have proposed a broad range of policies to help bolster demand in Europe, including delaying budget cutting in stronger economies, reforming the labor markets and increasing inflation targets.
“The forecast for negative growth in the euro area reflects not only weakness in the periphery but also some weakness in the core,” Olivier Blanchard, the fund’s chief economist, wrote in the report, noting that Germany is expected to have virtually no growth in 2013 and France is expected to have a negative growth rate. He included one ominous warning: “This may call into question the ability of the core to help the periphery, if and when needed.”
On a more positive note, the I.M.F. said that equity prices had risen in a broad market rally, and volatility had fallen to precrisis levels. The spread between government bond yields for periphery and central euro zone economies has diminished as well.
Still, the fund warned that “markets may have moved ahead of the real economy” and noted that improved financial conditions had not, in many cases, translated to better access to credit for consumers and businesses, with lending standards remaining tight. In the euro area, indeed, credit continues to contract and lending conditions continue to tighten, the I.M.F. said, reflecting in part “the poor macroeconomic outlook for the region as a whole.”
The fund lowered its estimate of United States growth this year to 1.9 percent, down 0.2 percentage point from its January forecast. But it said the United States was “in the lead” in seeing an acceleration of growth, in part because Washington policy makers were able to avoid the so-called fiscal cliff of tax increases and spending cuts at the turn of the year.
The I.M.F. also said that the United States had proved too aggressive in carrying out budget cuts, given its still-sluggish rates of growth and high unemployment levels. It said it anticipated that the across-the-board $85 billion in budget cuts known as sequestration would push down growth levels this year and going forward.
“The growth figure for the United States for 2013 may not seem very high, and indeed it is insufficient to make a large dent in the still-high unemployment rate,” Mr. Blanchard said in the report. “But it will be achieved in the face of a very strong, indeed overly strong, fiscal consolidation of about 1.8 percent of G.D.P. Underlying private demand is actually strong, spurred in part by the anticipation of low policy rates under the Federal Reserve’s ‘forward guidance’ and by pent-up demand for housing and durables.”
The fund raised its estimate of growth for Japan, which has recently undertaken an aggressive round of fiscal and monetary stimulus to aid its slow-growing economy. Still, the I.M.F. anticipates an economic growth rate of only about 1.5 percent for this year and next for Japan.
Tokyo’s assertive monetary easing — which has pushed down the value of the yen, thus aiding the country’s exports — has reignited concerns about competitive devaluation, often referred to as currency wars. In the report, the fund acknowledged concerns over Japan’s policy, but called the recent bout of currency complaints “overblown.”
“There seem to be no large deviations of the major currencies from medium-term fundamentals,” it said. “The U.S. dollar and the euro appear moderately overvalued and the renminbi moderately undervalued. The evidence on valuation of the yen is mixed.”
On the whole, emerging economies are “doing well,” the fund said, though growth rates in some big developing countries — in particular China — seem to have declined somewhat from their precrisis levels. Of late, many developing countries have benefited from high commodity prices, low interest rates and money flowing in from abroad in search of returns, the fund said. In the past, such conditions have created asset bubbles, but policy makers seem vigilant about the risks, the I.M.F. added.
Article source: http://www.nytimes.com/2013/04/17/business/economy/imf-lowers-estimates-for-global-growth-for-2013.html?partner=rss&emc=rss
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