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IMF warns of ‘weak and uneven’ global recovery

IMF chief economist Olivier Blanchard: “The recovery continues, but it is weak and it is uneven”

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The International Monetary Fund has cut its forecast for global economic growth for both this year and next and warned the recovery is “weak and uneven”.

It is now forecasting 3.3% growth this year, down from its forecast in July of 3.4%. Next year, it predicts 3.8% growth, against an earlier prediction of 4.0%.

The reductions reflect sharp downgrades to the outlook for the eurozone, Russia, the Middle East and Japan.

It remains positive on the UK outlook.

“This number hides very different evolutions. Some countries have recovered or nearly recovered. But others are still struggling,” said IMF chief economist Olivier Blanchard.

Mr Blanchard said the pace of recovery was becoming more country specific.

In the UK, it expects the economy to continue to grow strongly, maintaining its July forecasts of 3.2% growth this year and 2.7% next year.

It said activity had “become more balanced”, driven by both consumption and business investment.

US rebounds

However, the fund said Europe was experiencing a “multispeed recovery” and downgraded its growth forecasts for Germany, France and Italy saying progress was still “slow and tentative” in many countries.

“Growth in the euro area nearly stalled this year, even in the core,” said Mr Blanchard.

The IMF has also sharply upgraded its outlook for the US this year, by 0.5% to 2.2%, saying the weakness at the beginning of the year was due to “mostly temporary” factors.

The US economy contracted sharply in the first three months of the year, mainly due to unexpectedly bad weather.

Japanese shop manager updates store tax

Japan received the largest downgrade of any country, with growth for this year now expected to be 0.9%.

The IMF said this reflected the bigger-than-expected impact of its decision to raise its sales tax in April to 8% from 5%.

There were also downward revisions for several emerging economies, with the largest being for Russian growth next year, reflecting what the IMF said was “an escalation of geopolitical tensions between Russia and Ukraine”.

“Even without further escalation, prolonged uncertainty could erode confidence, accelerate capital outflows, put pressure on the exchange rate, and further weaken investment and growth in Russia,” it warned.

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Analysis: Andrew Walker, economics correspondent

Weak and uneven was how Olivier Blanchard described the recovery. We have heard it many times before since the financial crisis. And we are likely to hear it again.

Even the bright spots in the developed world – the US and Britain – are shining partly on the strength of extremely low interest rates. The IMF has a persistent worry about the longer term outlook.

The agency’s Managing Director, Christine Lagarde, used the phrase “the new mediocre” in a speech setting the scene for the IMF and World Bank’s Annual Meetings.

It was a call for a battery of reforms – labour markets, cutting energy subsidies, opening up restricted occupations and public spending on infrastructure. We have heard much of that before too.

They are all matters for individual governments and are often politically difficult. She will spend this week in in Washington encouraging them to do more of it.

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…and I am Sid Harth

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