IMF: Pace of global economic growth is slowing

Chip Somodevilla/GETTY IMAGES - International Monetary Fund Managing Director Christine Lagarde holds a Jan. 17 news conference at the IMF headquarters in Washington. On Jan. 23, the IMF released its latest world forecast.

The pace of global economic growth is slowing and the major developed nations continue to pose the major threats as they battle with high debt and below-par growth, the International Monetary Fund said Wednesday in its latest world forecast.

The IMF forecasts world growth of 3.5 percent for 2013, slightly less than the organization projected in its previous report in October.

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Kenneth Rogoff, an economics professor at Harvard University and a former chief economist at the International Monetary Fund, talks about Europe's sovereign-debt crisis and the U.S. economy. (Source: Bloomberg News)

Kenneth Rogoff, an economics professor at Harvard University and a former chief economist at the International Monetary Fund, talks about Europe's sovereign-debt crisis and the U.S. economy. (Source: Bloomberg News)

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In a news conference, IMF chief economist Olivier Blanchard said he thought current conditions warranted “some cautious optimism” because “acute risks” have decreased — most notably the possibility that the euro currency union might disintegrate.

But he said growth remains weak through much of the developed world and, in particular, is “not enough to make a dent in the unemployment rate” — projected to remain at an elevated 8 percent among industrialized countries.

The fund’s forecast puts it largely in line with that of World Bank economists who last week also projected slowing growth and continued divergence between fast growing economies in Asia and Latin America, stodgy but consistent growth in the United States, and recession in the heart of Europe.

U.S. growth is projected at 2 percent, about a tenth of a percentage point below the IMF’s October figure and a less optimistic forecast than that of the U.S. Federal Reserve. Growth has essentially stalled in Britain and Japan — with Japan projected to grow next year only because of major new government stimulus spending.

A possible exit by Britain from the European Union could pose another shock in coming years if it disrupts trade or financial ties with the continent. British Prime Minister David Cameron has promised an up-or-down vote on the issue.

But Blanchard said he would “punt” on any discussion of the fallout, because that referendum is several years off.

Prospects for the euro zone remain dimmest of all: The IMF expects the 17-nation currency region to remain in recession for the year. The IMF previously forecast the euro-zone economy would grow by 0.2 percent in 2013. Between tepid growth in Germany and France and continued decline in Italy and Spain, the region’s economy is expected to contract by 0.2 percent over the year.

The forecast is further evidence of how difficult it is proving for the region to impose austerity on public spending and generate short-term growth.

Actions by European governments and the European Central Bank have largely restored stability to European financial markets. But that has not carried through to the broader economy. For example, the central bank of Spain said Wednesday the country’s economy shrank at an annual rate of 1.7 percent in 2012 — a steeper contraction than the IMF’s updated forecast.

There were bright spots that Blanchard said fed his sense of optimism. The United States skirted the “fiscal cliff” at the start of the year, and IMF officials said they expect the level of deficit reduction for 2013 will be “appropriate” — enough to avoid a loss of confidence in bond markets but not so much as to fully undermine growth.

He also said the buoyant mood in financial markets suggested a gradual return of confidence that should translate into business and household spending, particularly in the United States.

Financial markets “are seeing good things in the future, that the real economy will pick up, that consumers and firms will start investing more,” Blanchard said.

Developing countries are expected to record solid growth of 5.5 percent over the year, led by China at 8.2 percent. That represents a slowdown in China from the 10 percent and higher levels common there in the past 20 years, but it is considered a healthy slowdown as the country relies less on exports and more on internal spending.

 
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