An unexpected decline in output in the United States prompted the International Monetary Fund to lower the global growth forecast for this year, while warning that the uncertainty in Greece and re-balancing in China pose risks to the outlook.
In the July update to its World Economic Outlook, released Thursday, the Washington-based lender forecast 3.3 percent global growth for this year, which is smaller than the 3.5 percent predicted in April. The global growth projection for next year, however, was maintained at 3.8 percent.
Global growth was 3.4 percent in 2014 and 2.2 percent in the first quarter of this year, the report said.
The distribution of risks to the near-term outlook for global growth is broadly unchanged from the April report and is slightly tilted to the downside, the IMF said.
The report identified lower oil prices as a key upside risk, while highlighted disruptive asset price shifts and a further increase in financial market volatility were still seen as an important downside risk.
“Developments in Greece have, so far, not resulted in any significant contagion. Timely policy action should help to manage such risks if they were to materialize,” the IMF said.
“Nevertheless, recent increases in sovereign bond yields in some euro area economies reduce upside risks to activity in these economies, and some risks of a reemergence of financial stress remain.”
Other risks to the outlook were further appreciation of the U.S. dollar, sluggish growth in output and employment amid low inflation and crisis legacies in advanced economies, and geopolitical tensions in Ukraine, the Middle East and parts of Africa.
The growth forecast for the U.S. economy was sharply cut to 2.5 percent from 3.1 percent. The projection for next year was lowered by 0.1 percentage point to 3 percent.
“The unexpected weakness in North America, which accounts for the lion’s share of the growth forecast revision in advanced economies, is likely to prove a temporary setback,” the IMF said.
The growth outlook for euro area for this year was maintained at 1.5 percent and the projection for next year was raised slightly to 1.7 percent from 1.6 percent.
Among the big four in the single currency bloc, Germany and France had their growth forecasts for both years maintained, while Italy and Spain enjoyed an upgrade to projections.
“The economic recovery in the euro area seems broadly on track, with a generally robust recovery in domestic demand and inflation beginning to increase,” the report said.
“Growth projections have been revised upward for many euro area economies, but in Greece, unfolding developments are likely to take a much heavier toll on activity relative to earlier expectations.”
The growth forecast for advanced economies for this year was lowered to 2.1 percent from 2.4 percent. However, the projection for next year was kept at 2.4 percent.
U.K. growth forecast for this year was cut to 2.4 percent from 2.7 percent and the projection for next year was lowered to 2.2 percent from 2.3 percent.
Japan and Canada also had their growth projections for this year lowered to 0.8 percent and 1.5 percent, respectively. For next year, Japan’s growth outlook of 1.2 percent was maintained, while Canada’s forecast was raised to 2.1 percent from 2.2 percent.
Among emerging economies, China and India also had their projections for both years maintained. The Chinese economy was forecast to grow 6.8 percent this year and 6.3 percent next year. The Indian economy was projected to expand 7.5 percent this year as well as next.
Meanwhile, the Russian economy was forecast to contract less this year and grow next year. The forecast for this year was raised by 0.4 percentage points to -3.4 percent. The projection for next year was lifted by 1.3 percentage points to 0.2 percent.
Brazil’s growth projection for this year was cut to -1.5 percent and the forecast for next year was lowered to 0.7 percent. South Africa’s growth outlook for this year and next was left unchanged at 2 percent and 2.1 percent, respectively.
The material has been provided by InstaForex Company – www.instaforex.com