IMF Trims Global Growth Outlook Amid Emerging-Market Risks

By FOXBusiness

The International Monetary Fund on Tuesday trimmed its forecast for global growth for the year, citing continued weakness in the economies of emerging markets and threats from global conflicts.

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Global output should expand 3.6% in 2014, slightly lower than forecast in January, and grow 3.9% in 2015, the IMF said in its twice-yearly “World Economic Outlook.”

Meanwhile, the world’s more-advanced nations should see a more robust recovery.

“Global activity has broadly strengthened and is expected to improve further in 2014–15, with much of the impetus coming from advanced economies,” the IMF said.

However, “activity in many emerging market economies has disappointed in a less favorable external financial environment, although they continue to contribute more than two-thirds of global growth.”

As the economies of the U.S. and Europe heal in the wake of the 2008 financial crisis, growth in those regions will expand as austerity measures implemented after the crisis are scaled back. But conditions remain fragile in emerging markets, the report concludes.

“The strengthening of the recovery from the Great Recession in the advanced economies is a welcome development,” the IMF said. “But growth is not evenly robust across the globe, and more policy efforts are needed to fully restore confidence, ensure robust growth, and lower downside risks.”

Russia’s annexation of portions of the Ukraine could also have a negative impact on growth as Western nations mull an economic backlash against Russia.

The report said the easing of austerity measures in the U.S., an ongoing housing recovery and a sustained environment of low interest rates should offset growth setbacks caused earlier in the year by winter storms through much of the country.

The IMF predicted the Federal Reserve would not start raising interest rates from their range of 0% to 0.25% until late in 2015.

What’s more the IMF warned central banks in advanced economies against pulling back from accommodative monetary policies too soon and putting at risk the momentum gained in recent months.

Policymakers in advanced economies need to avoid a premature withdrawal of monetary accommodation. In an environment of continued fiscal consolidation, still-large output gaps, and very low inflation, monetary policy should remain accommodative, the report states.

The report urges European fiscal leaders to use “unconventional measures” to spur economic growth. The European Central Bank has been mulling a bond purchase program known as quantitative easing similar to the asset purchases now being tapered in the U.S.

The bond purchases pump much-needed cash into a stagnant economy and promote spending and thus growth.

The IMF reiterated its concern for low inflation in the eurozone and said it saw about a 20% chance of growth-sapping deflation in the region.

“Sustained low inflation would not likely be conducive to a suitable recovery of economic growth," the IMF said, repeating a call for the ECB to ease monetary policy in the eurozone.

The IMF warned the conflict between Russia and Western countries over Ukraine could cut into growth in other ex-Soviet economies. Russia, a top producer of both commodities and a key natural gas supplier to Europe, was hit with EU and U.S. sanctions over its annexation of Ukraine's Crimea region.