IMF cuts 2012 global growth forecasts

By AGENCIES

THE International Monetary Fund (IMF) has revised its global growth forecasts for this year and next slightly lower, saying this was mainly due to financial and sovereign stresses in the euro area which had “ratcheted up”.

The Washington-based lender’s updated World Economic Outlook sees global growth slowing to 3,5% this year from 3,9% last year, before accelerating back to 3,9% in 2013.

The institution’s new forecasts are 0,1 and 0,2 percentage points lower respectively than the estimates in its April outlook.In line with the global trend, the IMF revised its forecasts for growth in South Africa down by 0,1 percentage point for both this year and next, predicting the economy would expand by 2,6% this year and 3,3% next year.

There would only be a “minor setback” to global growth this year due to better-than-expected results in the first quarter, the IMF said in its report.

It warned, however, that the new forecasts were based on three important assumptions.

First, that there will be enough policy action for financial conditions in the euro area periphery to gradually improve

The second assumption was that steps by major emerging markets to stimulate growth would “gain traction”.

Finally, the IMF said it was important that US fiscal policy did not tighten sharply next year as a result of political gridlock around the expiry of temporary tax cuts and deep automatic spending cuts.

This could lead to a decline of more than four percentage points in the country’s fiscal deficit, which would cause a severe fall in US growth and “significant spillovers to the rest of the world”, the IMF said.

The world’s biggest lender warned, however, that the most immediate risk to the global recovery was that delayed or insufficient policy action would further escalate the euro crisis.