When The US Slows So Does The World.

IMF lowers global growth forecasts, cites U.S. weakness

 

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A woman withdraws money at an ATM outside a National Bank branch in Athens, July 9, 2015. REUTERS/Jean-Paul Pelissier

By Anna Yukhananov and Megan Cassella

But the global financial institution said growth prospects for next year remain undimmed, despite Greece's debt crisis and recent volatility in Chinese financial markets.WASHINGTON (Reuters) - The International Monetary Fund on Thursday trimmed its forecast for global economic growth for this year to take into account the impact of recent weakness in the United States.

In an update to its World Economic Outlook report, the IMF said the global economy should expand 3.3 percent this year, 0.2 percentage point below what it predicted in April. Growth should speed up to 3.8 percent next year, it said, unchanged from earlier forecasts.

The IMF pinned much of the blame for the lower growth forecast on the United States. The U.S. economy contracted in the first quarter, hurt by unusually heavy snowfalls, a resurgent dollar and disruptions at West Coast ports.

The IMF said it expected the U.S. economy to grow 2.5 percent this year - it lowered the U.S. growth forecast last month from 3.1 percent in April. The IMF also said U.S. economic sluggishness had spilled over to Canada and Mexico.

"(But) for the most part, it was a series of accidents ... and the rest of the year should not be very much affected," Olivier Blanchard, the IMF's chief economist, said in a press conference.

The IMF maintained its forecasts for a pickup in growth in the euro zone, despite Greece moving closer to the edge of default and an exit from the currency bloc as it races to find a last-minute third bailout.

"The stress tests of the last 10 days (around events in Greece) reassure us and make us think that if things go badly in Greece ... the rest of the world would probably survive quite well," Blanchard said.

In developing economies, the IMF said growth had been dampened by lower commodity prices, tighter financial conditions tied to economic rebalancing in China and geopolitical factors.

Chinese stock markets have tumbled by more than 30 percent over the last month, prompting regulators to impose heavy-handed intervention to stem the rout.

The IMF said the market crash suggests China could face difficulties as it tries to move from an investment-led economic growth model to one focused on domestic consumption.

The Fund also repeated its warning that asset price shifts and financial market volatility could disrupt predictions, though it expects geopolitical tensions tied to Russia and the Middle East to calm down next year.

(Reporting by Anna Yukhananov and Megan Cassella; Editing by Paul Simao)