By Daniel Hunter
The International Monetary Fund (IMF) presented a gloomier picture of the global economy than a few months ago, saying prospects have deteriorated further and risks increased.
Overall, the IMF’s forecast for global growth was marked down to 3.3 percent this year and a still sluggish 3.6 percent in 2013.
In its latest World Economic Outlook, unveiled in Tokyo ahead of the IMF-World Bank 2012 Annual Meetings, the IMF said advanced economies are projected to grow by 1.3 percent this year, compared with 1.6 percent last year and 3.0 percent in 2010, with public spending cutbacks and the still-weak financial system weighing on prospects.
Growth in emerging market and developing economies was marked down compared with forecasts in July and April to 5.3 percent, against 6.2 percent last year. Leading emerging markets such as China, India, Russia, and Brazil will all see slower growth. Growth in the volume of world trade is projected to slump to 3.2 percent this year from 5.8 percent last year and 12.6 percent in 2010.
“Low growth and uncertainty in advanced economies are affecting emerging market and developing economies through both trade and financial channels, adding to homegrown weaknesses,” said IMF Chief Economist Olivier Blanchard.
Release of the closely watched forecast opens a week of intense activity in Tokyo, where more than 10,000 central bankers, ministers of finance and development, private sector executives, academics, and journalists are gathered to discuss global economic issues at the World Bank-IMF annual meetings being held in the Japanese capital.
Two other key economic assessments will be issued, the Global Financial Stability Report on the state of the financial sector and the Fiscal Monitor, which examines public finances.
The IMF said that its forecast rested on two crucial policy assumptions–that European policymakers get the euro area crisis under control and that policymakers in the United States take action of tackle the “fiscal cliff” and do not allow automatic tax increases and spending cuts to take effect. Failure to act on either issue would make growth prospects far worse.
The forecast said that monetary policy in advanced economies was expected to remain supportive. Major central banks have recently launched new programs to buy bonds and keep interest rates low. But the global financial system remains fragile and efforts in advanced economies to rein in budgetary spending, while necessary, have slowed a recovery.
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