IMF has trimmed global growth projections by 0.25 percentage points for 2013 and 2014, with risk to growth increasing particularly in the emerging markets.
In its recent World Economic Outlook, IMF now projects global growth at 3.1 percent for 2013 and 3.8 percent for 2014, a downgrade of 0.25 percentage points from its April 2013 report.
Private Demand to Push U.S. Growth
The international organization expects the U.S. market to grow from 1.75 percent in 2013 to 2.75 percent in 2014, on the back of slowing fiscal consolidation and solid private demand.
IMF recommends major advanced economies should continue to pursue a policy mix to support near-term growth, by placing their public debt levels on a sustainable path over the medium term.
Euro to Remain in Recession in 2013
IMF anticipates the euro zone to remain in recession in 2013 before showing signs of growth in 2014. The agency feels euro’s growth is hampered due to low demand, depressed confidence, fragmentation in financial markets, coupled with weak balance sheets and fiscal consolidation.
IMF expects the policy makers in the Eurozone to build on recent agreements to make progress towards a fuller banking union, including through a strong Single Resolution Mechanism.
Japan to Grow at 2 Percent
The international organization has one notable upgrade wherein it projects Japan to now grow at 2 percent, up 0.50 percent from the previous World Economic Outlook. The upgrade reflects a boost to confidence and private demand, thanks to the recent accommodative policies.
IMF anticipates China to post an average growth of 7.75 percent during 2013-14, a fall of 0.25 – 0.50 percent over its April estimates.
Emerging Markets Hardest Hit
The recent increases in advanced economies’ interest rates, enhanced capital outflows, equity price declines and rising local yields made hardest hit over the emerging market economies.
However, IMF forecasts that the rise in volatility and yields will partly reverse, as the temporary uncertainty about the U.S. exit from monetary policy stimulus wanes. The international organization, however, cautions that the capital outflows from the emerging markets would accentuate if financial market volatility remains high.
IMF also feels monetary policy easing should be the first line of defense against downside risks.
The international organization suggests structural reforms across all major economies to lift global growth and support global re-balancing.