US, UK and Germany to lead growth
The International Monetary Fund yesterday said a stronger recovery in rich countries such as the US and UK had sharply reduced the risks of another global downturn.
Although the fund forecast global growth of 3.6 per cent in 2014, rising to 3.9 per cent next year, it warned that the world still faced “years of slow and subpar growth” unless countries embark on structural reforms to improve their growth.
The fund’s World Economic Outlook estimates a 0.1 per cent probability of global recession in 2014, compared with a 6 per cent chance last October, with similarly reduced risks for 2015.
Most of the IMF’s forecasts were little changed, with expectations of stronger growth in the US, the UK and Germany boosting the global outlook.
Olivier Blanchard, chief economist of the IMF, said: “I think the recovery is strongest in the US . . . In a way it is pulling the world.”
The IMF has upgraded its growth forecast for the UK more than any other advanced economy to 2.9 per cent this year, although it criticises what it thinks is Britain’s credit-fuelled household spending. The fund has dropped its opposition to the government’s austerity drive, saying “efforts to raise capital spending while staying within the medium-term fiscal envelope should help bolster recovery and long-term growth”.
The fund expects the US to expand 2.8 per cent this year, the eurozone to regain positive momentum with a 1.2 per cent expansion, and Japan to maintain its recent trajectory with 1.4 per cent growth.
Although prospects for large emerging economies have dimmed, the IMF expects growth to remain robust, recovering gradually from 4.7 per cent last year to 5.3 per cent in 2015.
With a recovery more entrenched, Mr Blanchard said: “The recovery which was starting to take hold in October is becoming not only stronger, but also broader. The various brakes that hampered growth are being slowly loosened.”
The possibility of rising interest rates is one of the risks that might snuff out the brighter mood, the IMF said. Last week, the fund predicted weak global conditions would require interest rates to stay low for a long time.
Rising tension in Ukraine has added to geopolitical risk, the fund warned, as it cut Russia’s growth forecast by 0.6 percentage points this year.
With the main danger being subpar growth, the fund has redoubled its warnings that persistently low inflation would make the recovery all the more difficult, particularly if there is a new shock.
In a move that will be unwelcome in Frankfurt, the IMF urged the European Central Bank to undertake more monetary easing to ward off a potential bout of deflation.