By Peter OBIORA InvestAdvocate
Lagos (INVESTADVOCATE)-The International Monetary Fund (IMF) has revised downward global growth rate for 2014, citing new shocks, such as the euro area crisis, high unemployment, the legacies of the pre-crisis boom and the subsequent crisis, such as high private and public debt.
The update of the IMF’s World Economic Outlook (WEO) issued recently projects the world economy will grow at 3.3 percent this year, down 0.1 percent from its July forecast, and the global growth projection for 2015 was lowered to 3.8 percent down 0.2 percent from the July forecast.
The IMF said downside risks such as long period of low interest rates has led to some search for yield, and financial markets may be too complacent about the future.
Other risks cited according to the Fund are geopolitical risks, ‘’ So far, there is little evidence that Ukraine crisis has had measurable effects beyond the affected countries and their immediate neighbours,’’ the IMF said.
The WEO report added that though the turmoil in the Middle East may not have affected either the level or the volatility of energy prices very much. ‘’But, clearly, the risk that they do so in the future is there, and could affect the world economy in a major way,’’ the Fund affirmed.
‘’The third risk is a stalling of the recovery in the euro area, the risk that demand weakens further, and that low inflation turns into deflation. This is not our baseline, as we believe fundamentals are slowly improving, but, were it to happen, it would clearly be the major issue confronting the world economy,’’ the IMF said.
It cited the United States and United Kingdom economies are achieving decent growth. However, it said potential growth is lower than it was in the early 2000s. It cited for the reason for that of the US is harsh winter and an inventory correction, as well as a large decline in exports after rapid growth in the fourth quarter of 2013.
Japan is growing, but high public debt inherited from the past, together with very low potential growth going forward, raise major macroeconomic and fiscal challenges, the IMF report said.
According to the Fund, growth in the euro area nearly stalled earlier this year, even in the core. It said while this reflects in part temporary factors, both legacies, primarily in the south, and low potential growth, nearly everywhere, are playing a role in slowing down the recovery.
The IMF lowered forecasts for emerging market economies growth to 1.5 percent down from 1.7 percent in 2013 and lower than it was in 2011.
On the part of China, the Fund said the Asian giant is maintaining high growth, despite the end of housing and a credit boom. ‘’Looking forward, rebalancing is likely to imply slightly lower growth, but this must be seen as a healthy development. The Chinese authorities have implemented measures to buttress activity, which have supported faster growth in the second quarter,’’ the report said.
The Fund scaled up forecasts for India’s growth to exceed 5 percent, one reason it cited was that the country has recovered from its relative slump, which is as a result of its policy and a renewal of confidence.
‘’By contrast, uncertain investment prospects in Russia had already led to low growth before the Ukraine crisis, and the crisis has made it worse. Uncertain prospects and low investment, are also weighing on Brazil,’’ the IMF said.
It forecast growth in low income developing countries to 6.1 percent in 2014 and 6.5 percent in 2015; the WEO report said the countries continue to do well despite a slowdown in commodity prices.
The IMF advised emerging market economies on the general, urgent need for country-specific structural reforms to strengthen growth potential or make growth more sustainable.
