In a periodic update to its economic projections, the fund said on 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 had 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 the greatest risks — 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 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.”
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. While Washington had avoided falling over the “fiscal cliff,” the I.M.F. 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 beyond.
“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,” Olivier Blanchard, the fund’s chief economist, 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. expects 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.”
Article source: http://www.nytimes.com/2013/04/17/business/economy/imf-lowers-estimates-for-global-growth-for-2013.html?partner=rss&emc=rss