WASHINGTON--Weaker growth in the U.S., China and several
important emerging markets forced the International Monetary Fund
to downgrade its forecast for the global economy Thursday.
The fund said the world economy should expand by 3.4% this year,
down from its April forecast of 3.7%.
The downgrade shows Western nations are still struggling to
return to health a half-decade after the financial crisis pushed
the global economy into a nose dive. It also underscores how
emerging markets are finding it difficult to juice their economies
amid a broader slowdown in growth.
"Global growth could be weaker for longer, given the lack of
robust momentum in advanced economies despite very low interest
rates and the easing of other brakes to the recovery," the IMF said
in a quarterly update of its World Economic Outlook.
Governments in both advanced and emerging-market economies must
take action to make the economies more competitive, the fund said.
"Structural reforms are urgently needed to close infrastructure
gaps, strengthen productivity and lift potential growth," it
added.
The fund upgraded prospects for Japan, Germany and the U.K., but
negative surprises dominated the outlook.
One of the biggest drags was a 1.1-percentage-point cut in the
forecast for the world's largest economy, the U.S., from the IMF's
April predictions. A bad winter and an inventory overhang drove a
3% contraction in the first quarter.
In China, domestic demand fell more than expected as officials
try to rein in credit growth and prevent a real-estate bubble. The
fund says it now expects the world's second-largest economy to grow
at 7.4% this year, 0.2 percentage point lower than its previous
forecast.
The escalating sanctions against Russia for its actions in
Ukraine sparked capital flight out of the country, exacerbating a
fall in investment levels. The IMF says the Russian economy should
grow by only 0.2 % this year, down from its previous forecast of
1.3%.
The fund also cut growth expectations for Brazil and Mexico by
more than half a percentage point for the year as weaker U.S.
growth and timid investment weigh on growth.
Despite some upward revisions in Europe, high debt levels in
Italy and France continue to weigh, particularly as governments
have been unable to roll out enough economic changes to convince
investors about their longer-term growth prospects. The IMF cut
both France's and Italy's outlook by 0.3 percentage point to 0.7%
and 0.3% for the year, respectively.
The fund also warned that geopolitical risks over the Ukraine
crisis and in Iraq could pressure global growth even further,
especially if they lead to a rise in oil prices and trade flows are
disrupted. Emerging markets are also at risk if markets shift their
expectations for interest rate increases by the U.S. Federal
Reserve next year.
Write to Ian Talley at ian.talley@wsj.com
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