The International Monetary Fund (IMF) has cut its global economic growth forecast for this year to 3.1 per cent, down from the 3.3 per cent predicted in April, primarily due to weakness in major emerging market economies, a deeper recession in the euro area, and a slower than anticipated US recovery.
In its world economic outlook update released yesterday, the IMF also slashed next year's growth projection to around 3.8 per cent from 4 per cent earlier.
Emerging market economies have generally been hit hardest, as recent increases in interest rates in advanced economies and asset price volatility, combined with weaker domestic activity have led to some capital outflows, equity price declines, rising local yields, and currency depreciation.
Overall, emerging economies are projected to grow 5 per cent this year and 5.4 per cent next year, down 0.3 per cent in both the cases compared with the April forecast.
The US, the world's largest economy, is poised to grow 1.7 per cent in 2013 to 2.7 per cent in 2014 on the back of increasing domestic consumption and recovery in the housing market. The projections are 0.2 per cent lower than the earlier estimate.
India's growth forecast for 2013 was revised down to 5.6 per cent from 5.8 per cent in April. Next year's growth has been trimmed by 0.1 per cent to 6.3 per cent.
China, the world's second-largest economy, is expected to grow 7.8 per cent this year and 7.7 per cent in 2014, down from 8.1 per cent and 8.3 per cent predicted in April.
The economic forecasts for other BRICS nations have been cut significantly for the current year and the next year by between 0.9 per cent and 0.4 per cent. Russia will now grow at 2.5 per cent in 2013 and 3.3 per cent next year while the Brazilian economy is likely to expand 2.5 per cent and 3.2 per cent. South Africa is projected to grow 2 per cent this year and 2.9 per cent in 2014.
The weaker prospects reflect, to varying degrees, infrastructure bottlenecks and other capacity constraints, lower export growth, lower commodity prices, financial stability concerns, and, in some cases, weaker monetary policy support, the global lender said.
In contrast, growth will be stronger than expected in Japan, driven by consumption and net exports-the latter helped by the 20 percent depreciation of the yen since late 2012.
The Japanese economy is projected to grow 2 per cent in 2013 on the back of government's reformative policies and domestic demand, while the growth will be somewhat softer at around 1.2 per cent next year due to the weaker global environment.
The crisis-hit euro area will remain in recession this year with the economy shrinking by 0.6 per cent and register a minor 1-per cent expansion in 2014 due to expected delays in policy implementation in key areas.
Germany, Europe's largest economy, is forecast to grow a mere 0.3 per cent this year followed by a 1.3-per cent rise in 2014.
The UK economy is expected to register a 0.9-per cent expansion in 2013 and a 1.5-per cent growth next year.
"Downside risks to global growth prospects still dominate: while old risks remain, new risks have emerged, including the possibility of a longer growth slowdown in emerging market economies, especially given risks of lower potential growth, slowing credit, and possibly tighter financial conditions if the anticipated unwinding of monetary policy stimulus in the US leads to sustained capital flow reversals," the IMF said.