The International Monetary Fund foresees the global economy expanding less than it had previously forecast, slowed by weaker growth in the United States, Russia and developing economies.
However, IMF has retained its GDP forecast for India unchanged at 5.4 percent for FY15 and 6.4% for FY16. IMF believes improved business sentiment is likely to offset impact of poor rains and aid economic recovery in India. It says Indian GDP growth appears to have bottomed out.
The lending organisation predicted today that global growth will be 3.4 per cent in 2014, below its April forecast of 3.7 per cent. The downgrade reflects much slower expansion in the US. The IMF now expects just 1.7 per cent US growth in 2014, the weakest since the recession ended five years ago.
That’s down from its April prediction of 2.8 per cent, mostly because of a sharp weather-related contraction in the first quarter. The US economy shrank at an annual rate of 2.9 per cent in the first three months of the year. US growth should rebound to 3 per cent in 2015, the IMF said. The IMF also slashed its outlook for Russia’s growth to just 0.2 per cent this year and 1 per cent in 2015. Russia’s conflict with Ukraine has caused a sharp drop in foreign investment. The IMF included its forecasts in a quarterly update to its World Economic Outlook report.
The weaker growth estimates underscore the need for central banks in advanced economies in the US and Europe to keep interest rates low, the report said. The Federal Reserve has pegged the short-term rate it controls at nearly zero for more than five years. But most economists expect the Fed to start slowly raising that rate in mid-2015. The European Central Bank has cut its benchmark rate to 0.15 per cent, a record low. It’s also placed a negative rate on the deposits it holds for commercial banks to try to get them to lend more.
The IMF also stressed that much of the downgraded forecast reflects temporary factors, such as harsh winter weather and a slowdown in inventory restocking in the United States. In a separate report Wednesday, the IMF said it expects the US economy to rebound in the April-June quarter at a healthy 3.5 per cent annual rate.
