econ
  • Eurozone recession to deepen to -0.3 percent
  • France forecast for 0.1 percent contraction
  • US growth downgraded to 1.9 percent
  • China to lead developing world with 8 percent GDP growth

The International Monetary Fund has cut its global economic growth forecast as austerity programmes in the US and Europe hit output in markets all over the world.

The Fund's Spring World Economic Outlook says global growth will hit 3.3 percent this year, down from its January estimate of 3.5 percent. The forecast calls for a rebound of 4 percent in 2014, however, the same assessment it delivered in its Winter forecast. Advanced economies will grow at a 1.2 percent pace, the Fund said, down from its previous view of 1.3 percent. So-called emerging and developing economies will expand by 5.3 percent this year and 5.7 percent next year, healthy figures but still 0.2 percent and 0.1 percent lower, respectively, than the Fund predicted just three months ago.

"Global economic prospects have improved again but the road to recovery in the advanced economies will remain bumpy," the report said. "World output growth is forecast to reach 3.25 percent in 2013 and 4 percent in 2014. In advanced economies, activity is expected to gradually accelerate, starting in the second half of 2013.

"Private demand appears increasingly robust in the United States but still very sluggish in the euro area. In emerging market and developing economies, activity has already picked up steam."

The Fund's US grow forecast was trimmed by 0.2 percent to 1.9 percent for this year and by 0.1 percent to 3 percent for next year. UK growth was lowered by 0.3 percent for both this year and next to 0.7 percent and 1.5 percent respectively.

"Growth would probably be between 1.5 percent and two percent higher" if the US government were not planning significant fiscal tightening, the IMF's chief economist Olivier Blanchard told reporters in Washington.

In developed economies, the only upward revisions to the Fund's Winter forecasts were for Germany, where it sees growth of 0.6 percent this year, and Japan, where it sees its biggest potential improvement: a 0.4 percent mark-up from its January assessment to 1.6 percent.

"Japan is forging a path of its own. After many years of deflation, and little or no growth, the new government has announced a new policy, based on aggressive quantitative easing, a positive inflation target, fiscal stimulus, and structural reforms. This policy will boost growth in the short term ... given the high level of public debt, however, embarking on a fiscal stimulus in the absence of a medium-term fiscal consolidation plan is risky; it increases the probability that investors will require a risk premium, and that this will lead in turn to debt unsustainability," the report said.

France receives the Fund's biggest downgrade for developed economies, with the Spring report suggesting a full-year contraction of 0.1 percent for this year. That's a 0.4 percent mark-down from January and a full 0.2 percent from the French government's own estimate of 0.1 percent growth.

"France's growth is forecast to be negative in 2013, reflecting a combination of fiscal consolidation, poor export performance, and low confidence," the report said. "This may call into question the ability of the core to help the periphery, if and when needed. Most euro area periphery countries, notably Italy and Spain, are expected to have substantial contractions in 2013. The process of internal devaluation is slowly taking place, and most of these countries are slowly becoming more competitive."

Collectively, the Fund expects the Eurozone to shrink 0.3 percent this year before rebounding to 1.1 percent in 2014.

China will continue to pace growth in the developing world, the Fund predicts, growing 8 percent this year and 8.2 percent next year. Brazil is forecast to be the slowest growing of the so-called BRIC economies, advancing by 3 percent this year before recovering to a 4 percent expansion rate in 2014.

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