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UPDATE 1-IMF cuts global growth outlook, warns of stagnation risk in rich nations
July 24, 2014 / 5:55 PM / 3 years ago

UPDATE 1-IMF cuts global growth outlook, warns of stagnation risk in rich nations

(Adds Blanchard quotes on markets, Russia)
    WASHINGTON/MEXICO CITY, July 24 (Reuters) - 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 richer nations in particular faced
the risk of economic stagnation unless they took steps to foster
sustainable growth.
    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
take hold.
    The low rates have spurred markets higher, and valuations
could be a bit "optimistic," the IMF's chief economist Olivier
Blanchard said.
    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
growth prospects.
    Speaking at a news conference in Mexico City, Blanchard
urged countries to do more to boost growth via structural
reforms and investing in infrastructure.
    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 grow just 0.2 percent this year due to
sanctions and other impacts of the Ukraine crisis.
    In the latest volley, the United States last week slapped
sanctions on two large Russian energy firms and two banks, in
addition to some defense firms, moves Blanchard said could push
the country into recession.
    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

 (Reporting by Anna Yukhananov in Washington and Michael O'Boyle
in Mexico City; Editing by Andrea Ricci and Simon Gardner)

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