The world economy has maintained strength over the past six months, but Europe remains a weak spot with even France now facing a troubling decline, the International Monetary Fund said Tuesday in its latest global economic forecast.
The IMF outlined what it has termed a “three speed recovery,” with developing nations growing smartly, the United States gathering momentum and Europe lagging with serious risks still surrounding the 17-nation euro currency union.
Developing nations are expected to grow by 5.3 percent this year, accelerating to 5.7 percent in 2014. The United States will grow by only 1.9 percent in 2013, but the IMF noted that is in the face of an “overly strong” drop in government spending equivalent to some 1.8 percent of annual economic output — a fact that the fund considers a sign of underlying private-sector strength. Growth in the United States is expected to jump to 3 percent in 2014.
The euro-area economy will shrink 0.3 percent this year, and grow only 1.1 percent in 2014 — a rate that will do little to lessen the region’s dire employment and public debt problems.
While the IMF considers the euro’s financial crisis to have lessened in intensity over the past few months — with a lower risk of the currency union breaking apart — the lag in growth is a serious problem. Europe’s various bailout programs — five of the 17 euro members have needed outside help — hinge on the stability and economic success of two core nations, France and Germany. One of them is now flirting with recession, the IMF said.
The IMF’s forecast for French economic growth was lowered in today’s report by nearly one half of a percentage point, “reflecting a combination of fiscal consolidation, poor export performance and low confidence.”
The French economy is now expected to contract by 0.1 percentage points this year, a performance “that may call into question the ability of the core to help the periphery,” the IMF concluded.
Overall world growth is projected at 3.3 percent for the year — down slightly from the IMF’s January forecast — and 4 percent in 2014.
The IMF took aim at the stalled budget debate in the United States, warning against a continued reliance on sequester to bring down the annual deficit and urging the country to tackle longer-range issues such as entitlement spending. In an effort to balance the draconian fiscal contraction in Europe with spending elsewhere, the IMF has urged countries that still have the power to borrow to move as slow as possible on their own deficit reduction plans.
In the United States, “there should be both less and better fiscal consolidation now and a commitment to more fiscal consolidation in the future,” when world conditions might be stronger, the IMF advised.
The overall tone of the report was positive. At the end of 2012, there was concern about a euro-zone breakup and widespread uncertainty about the effects of the U.S. “fiscal cliff.” With those threats receding, the fund said, growth should pick up.