According to the International Monetary Fund report released Tuesday, global economic growth will be slower than expected in 2013 and the next year due to the weaker consumer demand in emerging markets as well as the recession in the euro zone. In the IMF’s quarterly update of World Economic Outlook, it warned that action must be taken to improve growth.
Some of the actions that need to be done are structural reforms in the emerging markets, measures to bolster the banking system in Europe, and a medium term plan to lower the deficit in the United States and Japan. The IMF said global economic growth of 3.1 percent in 2013 as well as 3.8 percent in 2014 were 0.2 percentage points lower each year than the estimates made three months ago.
Olivier Blanchard, IMF’s head of research, identified three new risks for the global economy. These are Japan’s capacity to maintain its debt at sustainable levels, slowed growth in China, and the US Federal Reserve’s decision to reduce its stimulus program. He added that Europe remained struggling.
The IMF estimates that the US economy will gain 1.7 percent in 2013, which is the same as last year and 0.2 percentage points below the initial forecast made in April. In 2014, growth is predicted to be 2.7 percent, down from 2.9 percent.
The IMF said that euro zone’s recession will deepen in 2013. It would contract the economy by 0.6 percent this year. In 2014, the IMF expects Europe to grow 0.9 percent, which is down 0.1 percentage point than IMF’s initial estimate.
Emerging markets have caused concerns according to the IMF report. They face tighter financial conditions and their access to credit is limited, which is a result of the speculation regarding the end of the Fed’s quantitative easing. Emerging markets will experience capital outflows and currency depreciations.