IMF cuts global growth forecast

The International Monetary Fund today cut its forecast for global economic growth and warned that the outlook could dim further if policymakers in Europe do not act with enough force and speed to quell their region's debt crisis.

In a mid-year health check of the world economy, the IMF said emerging market nations, long a global bright spot, were now being dragged down by Europe. It said a drop in exports in these countries would combine with earlier policies meant to prevent overheating and slow growth more sharply than hoped.

The IMF shaved its 2013 forecast for global growth to 3.9 per cent from the 4.1 per cent it projected in April, trimming projections for most advanced and emerging economies. It left its 2012 forecast unchanged at 3.5 per cent.

"Downside risks to this weaker global outlook continue to loom large," the IMF said.

"The most immediate risk is still that delayed or insufficient policy action will further escalate the euro area crisis." The global lender said advanced economies would only grow 1.4 percent this year and 1.9 per cent in 2013.

It also trimmed its forecast for emerging economies, projecting they will expand 5.9 per cent in 2013 and 5.6 per cent in 2012.

Both figures are 0.1 of a percentage point lower than in April.

The IMF cut its 2013 growth forecast for the crisis-hit euro zone to 0.7 percent, while maintaining its projection of a 0.3 per cent contraction this year. It said it now believes Spain's economy will shrink both this year and next.

The IMF sharply revised down its growth projections for the United Kingdom to 0.2 per cent this year and to 1.4 per cent in 2013. In April, the fund said the UK economy would expand 0.8 percent in 2012 and 2.0 per cent next year.

Central banks in China, the euro zone and Britain have all eased monetary policy in recent weeks to support growth. The US Federal Reserve has said it is poised to do more if needed.

The IMF said the European Central Bank had room to ease policy further and said officials in emerging economies should be prepared to cope with declines in trade and increased volatility in capital flows.

The fund praised crisis-fighting measures adopted by European leaders at a summit in June as "steps in the right direction" but called for more fiscal and banking integration.

It urged the creation of a pan-European deposit insurance guarantee program and a mechanism to resolve failing banks, and call on the ECB to provide ample liquidity to support banks under "sufficiently lenient conditions." It made clear, however, that Europe was not the only risk.