IMF trims growth forecast for advanced economies

GMT 17:39 2015 Tuesday ,06 October

Arab Today, arab today IMF trims growth forecast for advanced economies

International Monetary Fund
Washington - AFP

The International Monetary Fund forecast Tuesday modest economic growth in the advanced economies through next year, stronger in the United States and Britain and tentative in the eurozone and Japan.

The group of advanced economies -- which includes the US, four countries in the eurozone, Japan, Britain and Canada -- is projected to grow 2.0 percent in 2015 and 2.2 percent in 2016, the IMF said in its new World Economic Outlook.

That would represent a slow pickup from a 1.8 percent expansion in 2014.

Overall, the IMF slightly lowered its outlook for the advanced economies from its July estimates, by one-tenth point for this year and two-tenths point for next year.
The recovery from the 2008-2009 financial crisis is strongest in the United States and Britain, where central banks are mulling tightening monetary policy.

The US economy, which grew 2.4 percent in 2014, is projected to pick up the pace to 2.6 percent this year and 2.8 percent in 2016.

The British economy's expansion would slow from 3.0 percent growth last year to 2.5 percent in 2015 and 2.2 percent in 2016.

Advanced economies would expand "modestly," the IMF said, noting that growth in productivity remained weak.

Growth would be much slower in the eurozone, with 1.5 percent this year and 1.6 percent in 2016, but still marking an acceleration from last year's 0.9 percent pace.

The Japanese economy, which contracted 0.1 percent in 2014, was expected to grow just 0.6 percent in 2015 and 1.0 percent in 2016, forecasts cut by two-tenths each from what the IMF projected three months ago.

In the four biggest economies of the 19-nation eurozone, Spain was poised for the strongest growth, at 3.1 percent this year and 2.5 percent in 2016.

Germany, the largest European economy, would grow slight less than previously expected but hewing to its 2014 pace: 1.5 percent this year and 1.6 percent next year.

France's outlook was unchanged at 1.2 percent in 2015 and 1.5 percent in 2016. Italy would recover from a 0.4 percent contraction in 2014 to 0.8 percent growth this year and 1.3 percent next year.
Canada, a major commodity exporter, was predicted to suffer from the fall in their prices, as the IMF made its biggest downward revisions for an advanced economy. After scoring 2014 growth of 2.4 percent, the Canadian economy would see the pace fall to 1.0 percent this year before picking up to 1.7 percent in 2016.

In general, the decline in prices for oil and other commodities has supported consumer demand in most advanced economies because they are net importers of the materials. But advanced economies should expect a slowdown in exports because of weakening demand in emerging-market economies.

- Diverging monetary policies -

The outlook for inflation in the advanced economies remained muted, reflecting the drop in commodity prices. Consumer prices would rise just 0.3 percent in 2015 and 1.2 percent in 2016.

"Inflation expectations, particularly in the euro area and Japan, remain low, and there is a risk they may drift downward if inflation remains persistently weak," the IMF warned.

Inflation generally remains below central bank targets, it said.
The dollar would likely continue to strengthen because of more solid US domestic demand but mainly because of the Federal Reserve's plan to raise interest rates this year.

Monetary policy will diverge among major advanced economies, the IMF noted, when the Fed raises rates from the zero level where they have been pegged since 2008 to support the US recovery.

The IMF noted that there was little evidence of pickup in low US inflation, and repeated its recommendation that the Fed should wait until there were tangible signs of accelerating inflation before lifting rates.

The 188-nation crisis lender warned risks to economic growth were on the rise.

"The main medium-term risk for advanced economies is a further decline of already-low growth into near stagnation, particularly if global demand falters further as prospects weaken for emerging market and developing economies," it said.

"Accommodative monetary policy remains essential, alongside macroprudential policies to contain financial sector risks as needed."

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