IMF cuts Chinese growth projections

World economic growth will struggle to accelerate this year as China's expansion rate falls to 7.8 per cent, a US recovery weakens, and Europe's recession deepens, the IMF said.

Global growth will be 3.1 per cent this year, unchanged from 2012, and less than the 3.3 per cent forecast in April, the Washington-based fund said yesterday, trimming its prediction for this year a fifth consecutive time. The International Monetary Fund reduced its 2013 projection for the US to 1.7 per cent growth from 1.9 per cent in April, while next year's outlook was trimmed to 2.7 per cent from 3 per cent initially reported in April.

"Downside risks to global growth prospects still dominate," the IMF said in an update to its World Economic Outlook. It cited "the possibility of a longer growth slowdown in emerging market economies, especially given risks of lower potential growth, slowing credit, and possibly tighter financial conditions if the anticipated unwinding of monetary policy stimulus in the US leads to sustained capital flow reversals".

The fund urged central banks in wealthy nations facing low inflation and economic slack to keep injecting stimulus until recovery is entrenched, saying rising longer-term interest rates have hurt emerging markets the most. The developing economies need to be alert for financial risks if the "anticipated unwinding" of the US Federal Reserve's bond-buying programme reverses capital flows, the IMF said.

The IMF projected China's growth will be 7.8 per cent in 2013, down from an 8 per cent April projection, and the euro zone will shrink 0.6 per cent as the economies of France, Italy and Spain contract. The IMF projected a 0.3 per cent contraction for the euro area in April.

The IMF report says growth will weaken in emerging markets including China as external demand growth has slowed and advanced economy longer-term interest rate volatility has risen. The US is held back by fiscal contraction and Europe will remain in recession on the heels of its debt crisis, according to the report.

Plans for record monetary easing and increased private demand boosted the fund's improved forecasts for Japan, the world's third-largest economy, upgraded to 2 per cent growth this year from a 1.6 per cent projection in April.