July 10, 2013

IMF: Economic growth slower than predicted

The U.S. is doing better than other advanced economies, but the sequester is taking a toll.

Los Angeles Times

WASHINGTON — The International Monetary Fund on Tuesday lowered its forecast for U.S. and global economic growth this year, citing the European recession and reduced demand worldwide.

The world economy will grow 3.1 percent this year, the IMF said, down from its April projection of 3.3 percent. Growth also will be slower in 2014 -- 3.8 percent compared with an earlier 4 percent forecast.

The U.S. economy will grow 1.7 percent this year and 2.7 percent next year, both down 0.2 percentage points from the organization's April World Economic Outlook forecast.

Part of the reason for the change in the U.S. forecast was the automatic federal spending cuts, known as the sequester. The IMF said those cuts have "weighed on improving private demand" in the U.S. and now are forecast to remain in place until 2014, longer than anticipated this spring.

But the pace of U.S. fiscal consolidation will slow, allowing growth to pick up next year, the IMF said. And the U.S. is doing much better than other advanced economies, which as a group are expected to grow just 1.2 percent this year and 2.1 percent in 2014.

"Private demand should remain solid, given rising household wealth owing to the housing recovery and still-supportive financial conditions," the IMF said of the U.S. economy.

The IMF projections are lower than new White House estimates.

The Office of Management and Budget said Monday that the U.S. economy would grow 2.4 percent this year and 3.4 percent in 2014, down from earlier projections. Those growth figures are in line with the latest forecast by the Federal Reserve, released last month.

Worldwide, the IMF said "appreciably weaker domestic demand and slower growth in several key emerging market economies" such as China and India were a drag on global economies.

Emerging markets and developing economies are forecast to grow 5 percent this year and 5.4 percent next year, both 0.3 percentage points lower than the April forecast. In addition, "a more protracted recession" in the eurozone was driving down economic demand.

 

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