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8 Oct 2013
IMF cuts global growth outlook, urges US to raise debt ceiling
FXstreet.com (Barcelona) - The International Monetary Fund released its revised growth forecasts today and warned that the political stalemate in the US might lead to the country's default, if not resolved shortly. The Fund was however more upbeat on growth prospects for the Eurozone and the UK.
According to the World Economic Outlook report a prolonged government shutdown in the US could negatively affect growth in the country and a “failure to promptly raise the debt ceiling could also adversely affect financial markets and economic activity, with spillovers to the rest of the world." The current growth forecast is of 1.6% expansion this year and 2.6% the next, down from 1.7% and 2.8% seen in July, respectively.
The IMF advised the Federal Reserve to withdraw stimulus slowly, in order not to destabilize financial markets around the world, but as the Fund's chief economist Olivier Blanchard explained: "Normalization of interest rates in advanced economies is likely to lead to a partial reversal of previous capital flows. As investors repatriate funds to the United States, countries with weaker fiscal positions or higher inflation are particularly exposed,"
He also elaborated on the possible consequences of the approaching US debt crisis: “If the debt ceiling is not lifted then there's a direct effect on government spending, which would have to be cut quite drastically.”
“In addition, it would probably lead to a lot of financial turmoil: if there was a problem lifting the debt ceiling, it could well be that what is now a recovery could turn into a recession, or even worse,” Blanchard said.
The IMF lowered the outlook for the global economy to 2.9% this year, down from 3.1% seen in July. In 2014 it is expected to expand by 3.6%, versus 3.8%.
On the other hand, the Eurozone saw its GDP outlook upgraded by the IMF, by 0.1% to -0.4% in 2013, while the forecast for 2014 was maintained at +1%. IMF deputy director of research dept Jörg Decressin also suggested that recession in EU peripheral countries should end in the course of 2014. Meanwhile, the forecast for UK economic growth was revised upwards more than for any other G7 country. The UK GDP is expected to expand by 1.4% in 2013, compared with the previous forecast of 0.9% and by 1.9% in 2014, up from 1.5%.
According to the World Economic Outlook report a prolonged government shutdown in the US could negatively affect growth in the country and a “failure to promptly raise the debt ceiling could also adversely affect financial markets and economic activity, with spillovers to the rest of the world." The current growth forecast is of 1.6% expansion this year and 2.6% the next, down from 1.7% and 2.8% seen in July, respectively.
The IMF advised the Federal Reserve to withdraw stimulus slowly, in order not to destabilize financial markets around the world, but as the Fund's chief economist Olivier Blanchard explained: "Normalization of interest rates in advanced economies is likely to lead to a partial reversal of previous capital flows. As investors repatriate funds to the United States, countries with weaker fiscal positions or higher inflation are particularly exposed,"
He also elaborated on the possible consequences of the approaching US debt crisis: “If the debt ceiling is not lifted then there's a direct effect on government spending, which would have to be cut quite drastically.”
“In addition, it would probably lead to a lot of financial turmoil: if there was a problem lifting the debt ceiling, it could well be that what is now a recovery could turn into a recession, or even worse,” Blanchard said.
The IMF lowered the outlook for the global economy to 2.9% this year, down from 3.1% seen in July. In 2014 it is expected to expand by 3.6%, versus 3.8%.
On the other hand, the Eurozone saw its GDP outlook upgraded by the IMF, by 0.1% to -0.4% in 2013, while the forecast for 2014 was maintained at +1%. IMF deputy director of research dept Jörg Decressin also suggested that recession in EU peripheral countries should end in the course of 2014. Meanwhile, the forecast for UK economic growth was revised upwards more than for any other G7 country. The UK GDP is expected to expand by 1.4% in 2013, compared with the previous forecast of 0.9% and by 1.9% in 2014, up from 1.5%.
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