BUSINESS

IMF trims growth forecast for global economy this year and 2015; sees growth pickup in US

10/07/2014 10:23 EDT | Updated 12/07/2014 05:59 EST
WASHINGTON - The International Monetary Fund slightly lowered its outlook for global economic growth this year and next, mostly because of weaker expansions in Japan, Latin America and Europe.

The IMF said Tuesday the global economy will grow 3.3 per cent this year, one-tenth of a point below what it forecast in July. World growth should then pick up to 3.8 per cent in 2015, two-tenths of a point lower than its previous estimate, the IMF said in the latest installment of its World Economic Outlook.

The global lending organization has a more optimistic view of the U.S. economy, which it expects will grow 2.2 per cent this year, up from an earlier forecast of 1.7 per cent. Its forecast for 3.1 per cent growth in the U.S. next year was unchanged.

The outlook was also raised for Canada to 2.3 per cent this year and 2.4 per cent in 2015, up a tenth of a percentage point in both years from the July forecast.

Still, the global lending organization warned that the U.S., Europe and Japan could face years of sluggish growth unless governments take steps to accelerate activity. It acknowledged that it has frequently cut its forecasts in the past several years, and said that was partly because of slower long-run growth in advanced economies.

"The recovery continues, but it is weak and it is uneven," Olivier Blanchard, chief economist at the IMF, said at a press conference.

Blanchard warned that low interest rates have made investors "too complacent" in the advanced economies, particularly about the uncertainty around interest rates in the U.S. That could trigger sharp falls in financial markets, especially if rates rise faster than expected.

U.S. Treasury Secretary Jacob Lew had stronger words for the rest of the world. While the U.S. took decisive steps after the 2008 financial crisis to bolster its economy, other nations haven't been as aggressive to solve their own economic problems, he said Tuesday.

"I don't think the United States alone can pull the global economy to where it needs to be," Lew said during an appearance at the Peterson Institute for International Economics.

IMF's Blanchard also cited turmoil in the Ukraine and Middle East as risks to global growth, though for now the economic impact is limited to the countries involved. The IMF forecasts that Russia's economy will be brought to a near-standstill by sanctions and falling confidence among international investors.

The IMF forecasts that growth in the 18 countries that use the euro will be just 0.8 per cent this year, down from 1.1 per cent in its July forecast. It lowered its 2015 projection to 1.3 per cent from 1.5 per cent.

Japan will grow just 0.9 per cent in 2014, the fund said, down from the 1.6 per cent pace the IMF previously projected. It sees Japan's growth slipping to 0.8 per cent in 2015, down from its July estimate of 1 per cent. The world's No. 3 economy has slowed after a large sales tax took effect this spring.

It left its forecasts for China unchanged at 7.4 per cent this year and 7.1 per cent in 2015. While those figures would be healthy for most nations, they represent the slowest growth for China in decades.

The fund also sharply cut its forecast for Latin America and the Caribbean, which it now expects to grow just 1.3 per cent in 2014, down from a July estimate of 2 per cent. Growth will be 2.2 per cent in 2015, down from 2.6 per cent. The figures largely reflect weakness in Brazil.

The report is being released ahead of this weekend's annual joint meetings of the IMF and World Bank in Washington.

The IMF urged the United States, Europe and Japan to keep interest rates low to spur more borrowing, spending and growth. The European Central Bank should also consider buying government bonds if needed to avoid deflation, the report said.

The fund also said the U.S. and Europe should benefit from fewer tax increases and spending cuts in 2014 than in previous years. The report predicts that the U.S. Federal Reserve will hold off raising interest rates until the middle of next year.

But aging populations and lower productivity threaten to lower long-run growth in advanced economies, including the U.S. but "especially (Europe) and Japan," the IMF said.

To counter those trends, governments should consider spending more on infrastructure, education and job training, the IMF added.

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AP Economics Writer Martin Crutsinger contributed to this report.