IMF cuts global growth outlook

Report on world economy predicts 7.3 per cent expansion in China next year, and warns of consequences of US debt default

PUBLISHED : Wednesday, 09 October, 2013, 12:00am
UPDATED : Wednesday, 09 October, 2013, 4:47am

The International Monetary Fund cut its China and global outlook for this year and next as capital outflows further weaken emerging markets, and warned that a US government default could "seriously damage" the world economy.

The fund cut the forecast for China to 7.6 per cent this year, from 7.8 per cent in July and to 7.3 per cent in 2014 from 7.7 per cent.

Growth worldwide will be 2.9 per cent this year and 3.6 per cent next year, the IMF said in a report released yesterday, compared with July predictions of 3.1 per cent for 2013 and 3.8 per cent for 2014.

It sees emerging economies growing 4.5 per cent this year, 0.5 percentage points less than three months ago, as projections were reduced for Mexico, India and Russia apart from China.

Russia's growth model also seems "exhausted", according to the report, which sees growth at 1.5 per cent this year instead of 2.5 per cent in July and 3 per cent next year, from 3.3 per cent.

India will grow 3.8 per cent this year, down from a July prediction of 5.6 per cent, and 5.1 per cent next year, from 6.3 per cent.

"Advanced economies are gradually strengthening" while "growth in emerging-market economies has slowed", IMF chief economist Olivier Blanchard wrote in the World Economic Outlook report. "This confluence is leading to tensions, with emerging-market economies facing the dual challenges of slowing growth and tighter global financial conditions."

The IMF's forecasts factor in a short US government shutdown and an agreement on the nation's debt limit before an October 17 deadline. A stalemate that causes a default "could seriously damage the global economy".

"A longer shutdown could have sizable adverse growth implications," the IMF said in the report. "A failure to promptly raise the debt ceiling could also adversely affect financial markets and economic activity, with spillovers to the rest of the world."

The fund said of China: "Without fundamental reform to rebalance the economy towards consumption and stimulate productivity growth through deregulation, growth is likely to slow considerably."