IMF predicts growth slowdown

The world economy will grow more slowly than anticipated both this year and next according to the International Monetary Fund’s new biannual forecasts.

The fund also confirmed its downgrading of Ireland’s growth outlook, which is a result of the spillover effects from the wider euro zone crisis.

In its World Economic Outlook report, the IMF attributed the slowdown in growth in 2011 compared to last year to both anticipated and unanticipated events. Of the latter, a “more tenacious” crisis in Europe, a spike in oil prices earlier this year and the Japanese earthquake and tsunami were significant.

Of the anticipated dampeners of growth the report highlighted the withdrawal of government stimulus in many economies as consolidation plans begin to be implemented.

Although the IMF now expects full-year economic expansion in the advanced economies of 1.6 per cent this year (revised down from 2.2 per cent in June), its central forecast is for a modest acceleration in growth next year, to 1.9 per cent.

The emerging markets will grow much more rapidly, at 6.4 per cent this year, with a marginal deceleration, to 6.1 per cent, foreseen for next year.

Among the “key drivers” of global growth according to the report will be a strong recovery in Japan, lower oil prices and strong corporate investment funded by high profits.

Less positively from an Irish perspective, growth in global trade flows is expected to slow next year, meaning fewer opportunities for exporters. That said, at an anticipated rate of 5.8 per cent in 2012, growth in the volume of cross border trade in goods and services will be solid and in line with long term averages.

Ireland’s gross domestic product (GDP) is forecast to expand by 0.4 per cent in 2011, accelerating to 1.5 per cent next year.

All of the forecasts are subject to considerable risk, according to the IMF.

“Financial stability risks have once again increased dramatically” the report said. It goes on to raise concerns about “insufficiently strong policies” in the affected countries.

The report also highlights the threats posed to global growth by volatile commodity prices, geopolitical tensions and vulnerabilities in emerging markets.

Senior IMF economist Jorg Decressin told reporters Greece's debt problems were "eminently manageable" and its government was fully committed to staying in the euro zone.

More broadly, he said it was a "crazy proposition" to even talk about a possible break up of the 17-nation currency bloc because European leaders were fully committed to making the euro area work.