WASHINGTON, July 24 The International Monetary
Fund on Thursday chopped its 2014 forecast for global economic
growth to take into account weakness early in the year in the
United States and China, the world's two biggest economies.
The IMF warned that only some of the factors leading to the
reduction were temporary, and said richer nations in particular
faced the risk of economic stagnation unless they do more to
boost growth through deeper reforms, such as investing in
infrastructure or changing tax laws.
In an update to its World Economic Outlook report, the IMF
said the global economy should expand 3.4 percent this year, 0.3
percentage points below what it predicted in April. Growth
should still speed up to 4 percent next year, it said, unchanged
from what it predicted earlier this year.
But the Fund said a robust global recovery from the deep
financial troubles of 2007-09 was still not assured, and
geopolitical risks from the crises in the Middle East and
Ukraine could dent growth further.
"Robust demand momentum has not yet emerged despite
continued very low interest rates and easing of brakes to the
recovery, including from fiscal consolidation or tight financial
conditions," the IMF said, adding that all major advanced
economies would do well to keep policy rates low for now.
Central banks in the United States, Japan, the euro zone and
Britain have all sharply lowered rates to boost economic growth
and pledged to keep them there for longer to let the recovery
While unemployment fell more quickly than economists had
expected in the United States and Britain, wage growth and
consumer confidence still linger below pre-crisis levels in many
richer countries. At the same time, emerging markets are still
dealing with tighter financial conditions and reduced future
The IMF said bright spots in the global economy included
growth pick-ups in Japan, Germany, Spain and the United Kingdom.
But they were overshadowed by weak growth in the United States
in the first half of the year, as well as a
slowdown in domestic demand in China, where the government
sought to tamp down lending and the housing market cooled.
Russia also dragged down the overall forecasts, as its
economy is expected to barely grow this year due to sanctions
and other impacts of the Ukraine crisis.
In fact, out of the BRICS countries - Brazil, Russia, India,
China and South Africa - only India avoided an IMF ratings
downgrade, as business sentiment recovers after the country's
For its latest forecasts, the IMF calculated GDP growth
using new purchasing power parity benchmarks that were released
earlier this year, showing the global economy had actually
expanded more quickly in the past three years than the IMF had
thought, especially in emerging markets.
PPP measures the size of an economy using the currency's
real purchasing power, rather than market exchange rates, which
some believe more accurately reflects standards of living. The
result is that the IMF's initial forecast for 2015, for example,
was revised to 4 percent, from 3.9 percent using the old
(Reporting by Anna Yukhananov; Editing by Andrea Ricci)