IMF Lowers Global Growth Forecast

The International Monetary Fund (IMF) has lowered its global growth forecast for 2014 and 2015, citing divergences between those countries with economies that are recovering versus those countries that are still languishing. The IMF now estimates world growth at 3.3 percent in 2014, down 0.1 percent from its forecast in July and matching the 3.3 percent growth in 2013. For 2015, it now expects growth of 3.8 percent, down 0.2 percent from previous expectations. Non-inflationary potential growth rates are also being revised down. “These worse prospects are in turn affecting confidence, demand, and growth today,” said Olivier Blanchard, Economic Counsellor and head of the IMF's Research Department. "First, the long period of low interest rates has led to some search for yield, and financial markets may be too complacent about the future," Blanchard continued. "These risks should not be overplayed, but policymakers clearly must be on the lookout. Macroprudential tools are the right instruments to mitigate these risks; whether they are up to the task, however, is an open question." Two underlying forces weigh on global recovery, according to Blanchard. “In advanced economies, the legacies of the precrisis boom and the subsequent recession, notably high debt burdens and unemployment, still cast a shadow on the recovery, and low potential growth ahead is a concern.” In advanced economies, growth is forecast to rise to 1.8 percent in 2014 and 2.3 percent in 2015. Growth in emerging markets will still be the largest contributor to global growth, although that has been tempered to 4.4 percent for 2014, This slowdown is due to lackluster domestic demand and the impact of increasing geopolitical tensions, especially on Russia and neighboring countries.