The International Monetary Fund (IMF) has trimmed its forecasts for global output, the sixth occasion since early 2012 on which it has done so.
It blamed slowing growth in the developing world for the downgrade, which it said would only partly be offset by stronger growth in most advanced economies.
For 2013, the IMF now expects global output to expand by 2.9%, down from its July estimate of 3.1% and marking the slowest year of growth since 2009. For next year it predicts a modest upturn to 3.6%, rather than the 3.8% it penciled in three months ago.
The Fund added that the focus of the world economy has shifted back to the US as prospects for the emerging markets, which in recent years have been the main engine of the global recovery, have dimmed somewhat due to both structural and cyclical factors.
As a result, the US is driving much of the global recovery and its output should pick up further in 2014, provided that the current standoff in Washington over the country’s US$16.7 trillion debt ceiling is soon resolved.
The IMF comments that emerging markets still account for much of global growth, and their economies should expand nearly four times as fast this year as advanced economies, but the impressive annual growth figures of recent years may now be moderating.
China in particular should slow over the medium term as its economy transitions away from investment to consumption drivers. Markets no longer expect the Chinese government to step in with stimulus if growth dips below 7.5%, the Fund said. Lower growth in the world’s second-largest economy could spill over to others, especially commodity exporters dependent on China’s demand for energy.
Meanwhile, Japan has been enjoying an ‘impressive’ pickup since the government launched a massive stimulus program to spur the economy out of a prolonged stagnation, boosting output by about 1%. However, growth should slow next year as the stimulus recedes and Japan moves ahead with higher consumption taxes.
In Europe, a improved mood rather than any policy changes lifted core economies such as Germany and France, and even Italy and Spain should edge into positive growth territory during 2014, the Fund said. However, it added that the eurozone must still address financial fragmentation, improve the health of banks, and move closer to banking union, as it has urged in past reports.
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