9 Oct 2012 08:54am

IMF downgrades global economic forecast

The International Monetary Fund has downgraded its estimate for global growth, and warned of the “considerable” risk of further economic deterioration

The IMF is now predicting global growth in 2013 of 3.6%, down from the 3.9% it forecast in July, and of 3.3% this year from earlier forecasts of 3.5%.

The UK suffered one of the biggest downgrades. In July, the economic forecast was 0.2% growth – now the IMF is predicting the economy will shrink by 0.4%.

Next year, the UK economy is being predicted to grow by 1.1%, down from previous forecast of 1.4%. The IMF's report warned that Britain should relax its fiscal strategy, aimed at cancelling the UK’s structural deficit by 2017, if the economy remained weak.

In response to the downgrade,  the Treasury said, “In line with other recent forecasts, the IMF are today showing a downward revision to growth prospects across both advanced and emerging economies, which is why they repeat their advice that the first line of defence against this should be to allow the automatic stabilisers to operate, monetary policy easing and measures to ease the flow of credit – all of which the UK is doing.”

Olivier Blanchard, the IMF's chief economist, said the slowdown was being led by problems within developed countries. "Low growth in advanced economies is affecting emerging and developing economies through exports," he warned. 

Overall, the IMF has economic output would remain “sluggish in advanced economies” but many emerging economies would manage to see solid growth. It called on eurozone contries to work together to bring about greater integration of taxation and spending policies.

It also issued a warning to the US that its economy could fall back into recession if policymakers failed to make a deal to avoid automatic spending cuts and tax increases at the beginning of next year.Assuming this is avoided, the IMF has predicted 2.1% growth for the US next year, down from its forecast of 2.3%.

For this year however, it has upgraded its forecast to 2.2% growth rather than the 2% growth previously forecast.

China, the world's second-largest economy, is forecast to grow by 7.8% this year, down from its previous forecast of 8%, and by 8.2% next year, down from 8.5%.

The IMF also dramatically revised its growth forecasts for India, which is now set to grow by 4.9% this year and 6.1% next.


Helen Roxburgh