IMF global growth outlook lowered slightly

The reacceleration in the global manufacturing and trade cycle happened particularly in the emerging market economies, with many advanced European economies lagging behind the global upturn, the IMF's updated World Economic Outlook (WEO) showed.

The Fund forecasts that world output will increase by 3.3% this year, 0.2% lower than in a previous estimate in January, with advanced economies expanding by 1.2% and emerging ones growing by 5.3%.

By regions, Central and Eastern Europe is set to grow by a puny 2.2% this year, 0.3% less than in the Fund's previous projection in January. The outlook for the CIS excluding Russia was cut even deeper, by 0.8%, with the region now expected to advance 3.5%.

Russia's outlook was cut by 0.3% to 3.4%.

China is seen expanding by 8% this year, nearly flat from January's projection, while India is expected to grow 5.7%, an estimate that is 0.2% lower than in the previous WEO update.

Brazil's growth estimate was cut by 0.5% to 3% while Mexico's remained nearly flat at 3.4%. 

"Emerging market economies are in general doing well," Oliver Blanchard, IMF economic counsellor and director of Research Department, said in a news conference.

"So far and to their credit policy makers have generally succeeded in keeping aggregate demand in line with output growth," Blanchard said.

"At the same time potential growth has declined in some of the emerging countries and we shall not see again the high growth rates of the past."

He said the forecast for China was made before the country released lower than expected GDP growth figures for the first quarter of this year.

The US is expected to grow by 1.9% while the eurozone is seen shrinking 0.3%. 

A BETTER PLACE

Blanchard said the world economy, while in no way "out of the woods," was in a better place in terms of the risks it faces.

"A year ago there were two very short-term tail risks: the first one was in the US, it was about the fiscal cliff. The other was the notion that the euro will not stay together," he said.

But the measures taken by European Union leaders have ensured that the euro break-up risk "has disappeared" and now the world faces a "different type of risk" on how to reignite growth, Blanchard added.

Despite the lowered forecasts, the Fund said activity had "stabilized" in advanced economies and had "picked up" in emerging and developing economies, "supported by policies and renewed confidence."

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"Strong actions by European policymakers helped improve confidence and financial conditions. US policymakers avoided the fiscal cliff but have failed to find durable solutions to other short-term fiscal risks," the IMF report said.

For major advanced economies, the Fund forecasts "continued low policy interest rates" which "are expected to translate slowly into more dynamic bank lending" if risks to financial stability continue to recede.

In many emerging economies, "credit and activity are propelling each other," the Fund said, and while in some of them policy rate hikes and prudential measures have reined in credit growth, in many countries in Asia and Latin America, "credit expansion has continued at an elevated pace and credit-to-GDP ratios have continued to move up," the IMF warned.

"Monetary and regulatory authorities must watch for risks to financial stability that may ensue," it added. 

Monetary policies at a global level "are for the most part appropriate," Blanchard said in his news conference.

"Do they come with risk? Excessive risk-taking, bubbles and so on? They could. For the moment we do not think that this is a major issue on a macro scale and we think that this can be handled. It's something that we need to watch."

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