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IMF downgrades global growth forecast

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Written by: Laura Miller
20/01/2015
The global economy is set to grow slower this year and next, according to the International Monetary Fund (IMF).

The IMF now expects growth of 3.5% this year, compared with the previous estimate of 3.8% which it made in October, the BBC reports. The growth forecast for 2016 has also been cut, to 3.7%.

The downgrade to the forecasts comes despite a major boost for the global economy – the sharp fall in oil prices, which is positive for most countries. The IMF expects that to be more than offset by weaker investment as companies struggle to find a market for their goods and services.

In the eurozone, the IMF expects the recovery to continue, but not strongly. It is estimating growth of 1.2% in the euro area this year and 1.4% in 2016.

Speaking to the BBC, the IMF’s chief economist, Olivier Blanchard, said deflation in the eurozone was worrying, but “not the kiss of death… in itself, it’s not going to derail the recovery”. However, he acknowledged it was possible deflation could set off the eurozone’s debt crisis once again. Falling prices are particular problem for debtors, because their incomes – or for governments, their tax revenues – may fall, but the debt payments often do not.

The slowdown in China is another factor behind the revised forecasts. On Tuesday, official figures showed that China’s growth slowed to 7.4% last year, from 7.7% in 2013.
Next year, the IMF growth forecast for China is 6.3%, compared with an average of 10% over the three decades up to 2010.

The sharpest downgrade of all is for Russia, which is forecast to see its economy contract by 3% this year and 1% next. It reflects the fall in oil prices and what the report calls increased geopolitical tensions – in other words, the crisis in Ukraine and Western sanctions on Russia.

However in a bright spot the United States is now forecast to grow at 3.6% this year and 3.3% in 2016. For the UK, the forecast for this year is unchanged at 2.7% and is cut slightly to 2.4% for 2016. Blanchard sees the outlook for the UK as favourable, but he said that the weakness of the eurozone could act as “brake” on the British economy.

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