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IMF trims forecast for global growth because of recent US economy weakness

Saturday, July 11th 2015 - 05:30 UTC
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“Stress tests reassure us and make us think that if things go badly in Greece ... the rest of the world would probably survive quite well,” Blanchard said. “Stress tests reassure us and make us think that if things go badly in Greece ... the rest of the world would probably survive quite well,” Blanchard said.
The US economy contracted in the first quarter, hurt by unusually heavy snowfalls, a resurgent dollar and disruptions at West Coast ports. The US economy contracted in the first quarter, hurt by unusually heavy snowfalls, a resurgent dollar and disruptions at West Coast ports.

The International Monetary Fund has trimmed its forecast for global economic growth for this year to take into account the impact of recent weakness in the United States. But the global financial institution said growth prospects for next year remain undimmed, despite Greece's debt crisis and recent volatility in Chinese financial markets.

 In an update to its World Economic Outlook report, the IMF said the global economy should expand 3.3% this year, 0.2 percentage point below what it predicted in April. Growth should speed up to 3.8% next year, it said, unchanged from earlier forecasts.

The IMF pinned much of the blame for the lower growth forecast on the United States. The US economy contracted in the first quarter, hurt by unusually heavy snowfalls, a resurgent dollar and disruptions at West Coast ports.

The IMF said it expected the US economy to grow 2.5% this year - it lowered the US growth forecast last month from 3.1% in April. The IMF also said US economic sluggishness had spilled over to Canada and Mexico.

”(But) for the most part, it was a series of accidents ... and the rest of the year should not be very much affected,“ Olivier Blanchard, the IMF's chief economist, said in a press conference.

The IMF maintained its forecasts for a pickup in growth in the Euro zone, despite Greece moving closer to the edge of default and an exit from the currency bloc as it races to find a last-minute third bailout.

”The stress tests of the last 10 days (around events in Greece) reassure us and make us think that if things go badly in Greece ... the rest of the world would probably survive quite well,” Blanchard said.

In developing economies, the IMF said growth had been dampened by lower commodity prices, tighter financial conditions tied to economic rebalancing in China and geopolitical factors.

Chinese stock markets have tumbled by more than 30 percent over the last month, prompting regulators to impose heavy-handed intervention to stem the rout. IMF said the market crash suggests China could face difficulties as it tries to move from an investment-led economic growth model to one focused on domestic consumption.

The Fund also repeated its warning that asset price shifts and financial market volatility could disrupt predictions, though it expects geopolitical tensions tied to Russia and the Middle East to calm down next year.

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