IMF cuts growth outlook, warns on euro zone, Japan

Tue Oct 7, 2014 11:09am EDT
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By Anna Yukhananov

WASHINGTON (Reuters) - The International Monetary Fund cut its global economic growth forecasts for the third time this year on Tuesday, warning of weaker growth in core euro zone countries, Japan and big emerging markets like Brazil.

In its flagship World Economic Outlook report, the Washington-based lender cut its global growth expectations to 3.3 percent for this year and 3.8 percent for next year. In July it had expected growth of 3.4 percent in 2014 and 4 percent in 2015.

The IMF has now cut its current-year growth forecasts nine out of 12 times in the last three years as it consistently overestimated how quickly richer countries would be able to pull free from high debt and unemployment in the wake of the 2007-2009 global financial crisis.

It also lowered its expectations for longer-term potential growth, something its chief economist Olivier Blanchard called "the force from the future."

"You have these forces from the past, the forces from the anticipated future ... and I think that explains the sequence of revisions that we've had," Blanchard said in an interview.

The IMF again urged countries to carry out an array of structural reforms, such as improving labor market policies, fighting tax evasion and raising infrastructure spending, to avoid the risk of economic stagnation.

With interest rates already near rock-bottom in many advanced economies, it is harder to boost demand, Blanchard said, echoing the concerns of "secular stagnation" raised by former U.S. Treasury Secretary Lawrence Summers.

"On whether we'll be able to ... increase demand enough to get to potential output, I think we don't know yet," Blanchard said at a news conference. "It may be difficult."   Continued...

International Monetary Fund (IMF) Director Christine Lagarde delivers her speech on the global economy ahead of the fall meetings of the IMF and World Bank at Georgetown University in Washington October 2, 2014.    REUTERS/Gary Cameron