The International Monetary fund cut its growth forecast for the second time since April, warning on Tuesday that risks have increased.
Global growth is now forecast at 3.3% this year and 3.6% next year compared with estimates of 3.5% and 3.9% respectively, issued in July.
In the World Economic Outlook, unveiled in Tokyo ahead of the annual meetings of the IMF and the World Bank, the Fund said developed economies were forecast to grow by 1.3% this year, compared with 1.6% last year and 3% in 2010. Cuts in public spending and the weak financial system were weighing on prospects.
Emerging markets would grow by 5.3% compared with last year’s 6.2%, with the BRICs countries – Brazil, Russia, India and China – all expected to slow.
Growth in world trade volume is expected to see a sharp fall to just 3.2% this year from last year’s 5.8% and 2010’s 12.6%.
The IMF’s forecast relies on two “crucial policy assumptions”: that European policymakers get the eurozone debt crisis under control and that US policymakers take action to tackle the ‘fiscal cliff’ by not allowing automatic tax increases and spending cuts to take effect.
“Failure to act on either issue would make growth prospects far worse,” the IMF said on its website.
In the US, growth will be around 2.2% this year, rising to 2.7% next year, as the economy still faces weak consumer confidence, “relatively tight financial conditions” and “continued fiscal consolidation” which stand in the way of stronger growth, the IMF said.
In the eurozone, GDP is seen falling by 0.4% this year; it is seen flat in the first half of 2013 and rising by just 1% in the second half.
China’s economy is seen expanding by 7.8% this year and 8.2% next year, India is forecast to see GDP growth of 4.9% in 2012 and 6% next year, Brazil is expected to advance by just 1.5% this year but rebound by 4% in 2013 while Russia’s growth is seen at 3.7% this year and 3.8% next year.
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