The International Monetary Fund (IMF) on Thursday lowered its global economic growth forecast in 2014, citing "negative surprises" in the US and Chinese markets and geopolitical risks in Ukraine and the Middle East.
The July update of the World Economic Outlook (WEO) said that this year's growth projection has been lowered by 0.3 percent bringing it to a 3.4 percent rate. For 2015, the IMF is expecting "somewhat stronger growth in some advanced economies" and holds a projected growth rate at 4.0 percent.
In the case of the US, the IMF said, "The inventory overhang at the end of 2013 turned out to be larger than expected, leading to a stronger correction. A harsh winter further dampened demand, exports declined sharply after a strong fourth quarter, and output contracted in the first quarter of 2014." In China, "domestic demand moderated more than expected, reflecting the authorities' effort to rein in credit growth and a correction to real estate activity." The US comprises about a quarter of the world's gross domestic product (GDP) and shrunk by 2.9 percent in the first quarter with growth forecast reduced from 2.0 to 1.7 percent. China has the second-largest economy and had its forecast lowered from 7.6 to 7.4 percent.
Additionally, the update indicated, "Geopolitical risks have risen relative to April: risks of an oil price spike are higher due to recent developments in the Middle East while those related to Ukraine are still present." It added, "In Russia, investment is expected to remain weaker for longer, given geopolitical tensions." Countries that had "upside surprises" since the April WEO were Japan, German, Spain and the United Kingdom.