IMF cuts global growth forecasts for 2014 and 2015

news
09 October 2014

The International Monetary Fund (IMF) has lowered its global growth forecasts for 2014 and 2015 and has warned that the world economy might never return to the pace of expansion seen before the financial crisis.

The global financial body said at its flagship half-yearly world economic outlook (WEO) that the failure of countries to recover strongly from the worst recession of the postwar era meant there was a risk of stagnation or persistently weak activity.

According to the IMF, global growth was expected to be around 3.3 per cent in 2014, 0.4 points lower than what was projected in the April WEO and 0.1 points lower than the interim projections made in July. A pick-up in the rate of expansion to 3.8 per cent was projected for 2015, down from 3.9 per cent in the April WEO and 4 per cent in July. The IMF, however, highlighted the risk that its predictions would once again be too optimistic.

''The pace of global recovery has disappointed in recent years'', the IMF said, noting that since 2010 it had been consistently forced to revise down its forecasts. ''With weaker-than-expected global growth for the first half of 2014 and increased downside risks, the projected pick-up in growth may again fail to materialise or fall short of expectation.''

Meanwhile, in a report titled ''Back to Work: How Fiscal Policy Can Help'', the IMF said, slowing budget cuts could buy time for countries to overhaul workforce regulations in ways that would boost their economies, the fund said.

''A higher deficit or a slower pace of consolidation can absorb these, and offset the adverse short-term impact of reforms on output or employment.''

According to commentators, the report could bring a fresh perspective to a debate over European budget rules in countries such as France and Italy. Slowing expansions in the countries had added to concerns that fiscal consolidation would choke off growth.

According to the report, the cost to governments of cutting employment taxes could be cut by targeting specific groups that had taken the hardest hit by unemployment, such as low-skilled workers or youth.

According to the IMF, the pace of fiscal consolidation globally was slowing in 2014, as countries sought to balance goals of reducing deficits with the desire to boost growth.





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