IMF Slashes Global Growth Forecasts Amid Continued Slowdown
The International Monetary Fund slashed its global growth forecasts Monday as the global economy continues to slow. The report comes just days after China reported that GDP growth slowed to the lowest pace since 2009 and leading U.S. indicators point to a further slowdown in the U.S. recovery.
The IMF constantly updates its economic forecasts to new data, and economists at the fund now see further weakness in the global economy. Chief economist Olivier Blanchard said that the revisions were small, however the risks of missing forecasts to the downside have risen. However, he does believe that global authorities can help to strengthen the global recovery.
In its latest update, the IMF kept its forecast for global growth in 2012 at 3.5 percent, however it cut its 2013 forecast to 3.9 percent from 4.1 percent. These numbers are rather weak, as the global economy grew 5.3 percent in 2010. On a single-country basis, the IMF cuts were as follows for major economies:
- U.S. 2013 growth forecast to 2.3 percent vs 2.4 percent prior.
- India 2013 growth to 6.5 percent from 7.3 percent.
- Spain will contract 0.6 percent vs +0.1 percent prior.
- Eurozone 2013 growth +0.7 percent vs +0.9 percent.
- UK growth 1.4 percent vs 2.0 percent prior.
- China 8.5 percent vs 8.8 percent prior.
In terms of U.S. growth, the IMF warns that the fiscal cliff needs to be dealt with. If the fiscal cliff is allowed to become reality, they fund's economists predict that the U.S. would be sent into recession. Also, they fear that an inability to raise the debt ceiling would have significant spillover effects to other economies.
A continued slowdown in the global economy does not bode well for stocks in general. As demand falls, sales do too, hurting both the top and bottom line at companies. Also, monetary authorities in most markets have used extraordinary policy to bolster the global economy, only to see minimal returns from the policies. The Federal Reserve has set interest rates to zero, as have the Bank of England, the Bank of Japan, and the Swiss National Bank. Central banks have also embarked on massive balance sheet expansion. However, fiscal woes and over-indebtedness have created a push towards curbing deficits. This government deleveraging adds deflationary pressures to the global economy, cooling growth.
Should authorities be reluctant to act to boost growth, the ailing global economy could contract further. These downside risks highlighted by the IMF weighed on global markets, as stocks fell in early New York trading. The S&P 500 fell 0.5 percent to 1,349.36 as of writing.
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