The International Monetary Fund (IMF) reduced its 2015 global economic growth outlook to 3.8% due to persistent weakness in the euro area and the slowdown of several emerging market economies.

IMF

In July, the international organization’s global economic growth estimate was 4%. Olivier Blanchard, economic counsellor and head of the research department at IMF said, “These worse prospects are in turn affecting confidence, demand and growth today.”

According to the IMF, the average global economic growth this year would be 3.3%, unchanged from last year.

IMF on factors affecting global recovery

Blanchard explained that two underlying factors are affecting the global recovery. The legacies in the pre-crisis boom and the subsequent recession particularly the high debt burdens and unemployment in advanced economies. On the other hand, emerging economies are adjusting to lower growth potential.

Blanchard also noted that the investment has been weaker than anticipated for some time across the globe, which contributed to the “still mediocre” global growth.

In addition, he noted that the economic evolution is becoming more differentiated in major countries and regions. The pace of recovery also reflects various country-specific conditions.

IMF regional growth prospects

The IMF estimated that the advanced economies would grow by 1.8% this year and 2.3% next year.

The United States is expected to grow by 2.2% this year and 3.1% in 2015. The IMF noted that the labor market in the country has been strong, and the household balance sheets improved amid favorable financial conditions and recovered housing market.

The Euro area is expected to grow by 0.8% this year and 1.3% in 2015. The IMF noted that a lingering weakness in the region given its recent growth disappointments. The international organization forecasted that the region would experience a weak recovery supported by a sharp compression for interest spreads for stressed economies and record-low long-term interest rates in the core euro area economies.

The IMF estimated that Japan’s economy would grow by 0.9% this year, and would decline to 0.8% in 2015. In the second-quarter, the GDP of the country declined more than expected due to an increase in consumption tax. The IMF projected that its growth would remain broadly stable as private investment is expected to recover.

China’s growth is expected to decline from 7.7% to 7.4% in 2014. Its economy is expected to decline further to 7.1% in 2015. The IMF said China’s economy will transition to a more sustainable path.

Growth is expected to remain strong elsewhere in the emerging and developing Asia, according to IMF. Latin America’s growth is expected to decline by50% to 1.3% this year while the Middle East and North America’s recovery remains fragile. Russia and other economies of the Commonwealth of Independent States would experience modest improvements.

IMF Latest Growth Projections