IMF lowered the global economic growth estimate by 0.2 percentage points to 3.3%, and requires from Europe an aggressive monetary policy since the euro area recovery is behind the rest of the world, according to the new report World Economic Outlook. This is the fourth consecutive year when the IMF reduced estimates on global economic developments.
The Fund also changed the prognosis for eurozone economy, predicting a contraction of 0.3%, more than the 0.2% estimated in January. French economy will shrink, along with those of Spain and Italy.
“The main challenge is still very much in Europe. Europe should do everything it can to strengthen private demand. What this means is aggressive monetary policy and what this means is getting the financial system to be stronger — it’s still not in great shape,” said IMF chief economist Olivier Blanchard.
IMF describes a three-speed economic recovery led by emerging markets, including China, the United States and eventually Europe, after fighting the debt crisis which required financial support for five countries in the region.
The main danger in the short-term to the world economy is recession in the eurozone, but the inability of U.S. and Japan to adopt plans to reduce debt over the medium term will have consequences, according to the report.
U.S. economic growth estimate was reduced from 2% to 1.9%, to include the impact of automatic measures to reduce costs. Advance will accelerate to 3% in 2014, due to the recovery in the housing market, improved confidence and Federal Reserve stimulus measures.
The Fund has improved the prognosis for Japan’s economic growth this year from 1.2% to 1.6% due to an economic stimulus plan. For 2014 it is expected an advance of 1.4%, double the rate of 0.7% estimated in January.
For the world economy, the IMF estimates for 2014 an increase of 4%, 0.1 points below the forecast in January.
The report also shows that advanced economies have avoided two major threats to global recovery, namely the eurozone break the the so-called tax gap in the United States.
The Fund anticipates the worsening of economic contraction this year in Italy, 1.5%, compared to 1% estimated in January. For Spain FMI forecasts a decline of 1.6%, 0.1 points more. For France it is expected a fall in GDP of 0.1% compared to a 0.3% advance estimated in advance of January.
IMF considers that the ECB may reduce the monetary policy rate.
For Germany, the Fund maintained its estimate for this year’s GDP growth of 0.6%, below the 0.9% rate recorded last year. Blanchard believes that the low growth rate questions eurozone center capacity to support the periphery of the area.
Forecast for China’s economy has been reduced from 8.2% to 8% and forecast for India is now at 5.7% from 5.9%. For Brazil the estimate was revised from 3.5% to 3%.
Inflation remains under control globally and commodity prices could fall by 2% this year compared to 2013, with increasing supply of raw materials such as oil and grains.
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