IMF cuts global growth forecast; prods Europe, U.S

Mon Oct 8, 2012 5:49pm EDT
 
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By Emily Kaiser and Lesley Wroughton

TOKYO (Reuters) - The IMF cut its global growth forecast on Tuesday for the second time since April and warned U.S. and European policymakers that failure to fix their economic ills would prolong the slump.

Global growth is too weak to bring down unemployment and what little momentum exists is coming primarily from central banks, the International Monetary Fund said in its World Economic Outlook, released ahead of its twice-yearly meeting, which will be held in Tokyo later this week.

"A key issue is whether the global economy is just hitting another bout of turbulence in what was always expected to be a slow and bumpy recovery or whether the current slowdown has a more lasting component," it said.

"The answer depends on whether European and U.S. policymakers deal proactively with their major short-term economic challenges."

For 2012, the IMF now expects global output to grow just 3.3 percent, down from its July estimate of 3.5 percent, making it the slowest year of growth since 2009. It predicted only a modest pickup next year to 3.6 percent, below its July estimate of 3.9 percent.

Emerging markets are still expected to grow four times as fast as advanced economies, but the IMF took a sharp knife to its estimates for India and Brazil, with the latter now seen growing slower than the United States this year.

The IMF said "familiar" forces were dragging down advanced economy growth: fiscal consolidation and a still-weak financial system, the same problems that have plagued the world since the global financial crisis exploded in 2008.

"More seems to be at work, however, than these mechanical forces - namely, a general feeling of uncertainty," IMF Chief Economist Olivier Blanchard said.   Continued...

 
Managing Director of the International Monetary Fund (IMF) Christine Lagarde speaks at the Global Investment Conference 2012 in London July 26, 2012. REUTERS/Neil Hall