So much for the recovery. The IMF has downgraded its most recent forecast of global growth (from April) due to "appreciably weaker domestic demand and slower growth in several key emerging market economies".
China’s credit crunch, the Fed’s tapering talk and continued gloom in the eurozone also seem to have influenced the fund’s outlook, as it warned yesterday of new risks to global growth prospects in the form of a longer slowdown in emerging market economies.
Global growth increased only slightly from an annualised rate of 2.5% during the second half of 2012 to 2.75% during the first quarter of 2013, instead of accelerating further as the IMF expected at the time of its April forecast.
In a statement, the IMF drew attention to “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 fund said that underperformance was due to three factors: “First, continuing growth disappointments in major emerging market economies, reflecting, to varying degrees, infrastructure bottlenecks and other capacity constraints, slower external demand growth, lower commodity prices, financial stability concerns, and, in some cases, weaker policy support. Second, a deeper recession in the euro area, as low demand, depressed confidence, and weak balance sheets interacted to exacerbate the effects on growth and the impact of tight fiscal and financial conditions. Third, the U.S. economy expanded at a weaker pace, as stronger fiscal contraction weighed on improving private demand. By contrast, growth was stronger than expected in Japan, driven by consumption and net exports—the latter helped by the 20% depreciation of the yen (in real effective terms) since late 2012.”
Oliver Blanchard, economic counsellor to the IMF, discusses the problems in the Brics economies: