US to drive global growth, says IMF

Tags: News

Fund asks emerging markets to prepare for outflow of capital

Stronger US growth this year and next will help the world economy withstand weaker recoveries in emerging markets, including Brazil and Russia, the International Monetary Fund said.

The US is providing a 'major impulse' to global growth that's still lumbering amid weakness in Japan and parts of Europe, the IMF said in a report on Tuesday. While the UK and Germany are adding to mome­ntum, developing nations face new risks and Russia’s takeover of Crimea last month injects geopolitical tension that’s “casting a pall” on the region, the fund said.

(PTI adds: The IMF projec­ted India to recover from 4.4 per cent in 2013 to 5.4 per cent in 2014, supported by stronger global growth, improving export com­petitiveness and implem­entation of the recently-appro­v­ed investment projects. P8)

The IMF urged emerging markets to prepare for flows of capital back to advanced economies, and advised the European Central Bank that more monetary easing is needed now to keep deflation at bay.

The US will benefit from a longer period of record-low interest rates orchestrated by the US Federal Reserve, strong private demand and the end of a fiscal drag that slowed growth last year, it said.

“For the most part, the brakes are gone" in the US, IMF chief economist Olivier Blanchard said in a video accompanying the World Economic Outlook report. "The US recovery is the strongest among advanced economies and, therefore, in a way it's pulling the world.”

The IMF predicted global growth of 3.6 per cent this year, compared with a January estimate of 3.7 per cent. Next year, the expansion will accelerate to 3.9 per cent, unchanged from the prior forecast.

The IMF raised its forecast for UK economic growth for the second time this year, predicting Britain will have the fastest expansion among developed nations. A separate report today showed UK industrial production rose a larger-than-forecast 0.9 per cent in February.

In Japan, central bank officials refrained from adding to unprecedented monetary stimulus, indicating the Bank of Japan is confident in its outlook for economic growth.

"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. "Activity in many emerging market economies has disappointed in a less favorable external financial environment."

The IMF sees the US accelerating to a 2.8 per cent expansion this year and 3 per cent in 2015, unchanged from forecasts in January. Gross domestic product in the US increased 1.9 percent last year.

The fund said its forecasts are based on the assumption that the Fed's first interest-rate increase will occur in the third quarter of 2015 and that its bond-buying programme will end later this year.In what it called a "worrying development," the fund lowered predictions for Brazil, Russia, South Africa and Turkey. Brazil was reduced to 1.8 per cent this year from 2.3 per cent, and South Africa was cut to 2.3 per cent from 2.8 per cent.

Russia is seen growing 1.3 per cent, down from 2 per cent estimated in January, as the Ukraine crisis worsened an economy already weakened by volatile capital flows. If sanctions from the US and the European Union intensified, contagion could spread to the Commonwealth of Independent States, the IMF said. The IMF, which is preparing a loan programme for Ukraine, considers the country's debt sustainable, Blanchard said during a press conference in Washington. Ukraine tensions are affecting Russia through a worsening investment climate, and "fairly substantial capital outflows" should be expected, which may lead the country to raise interest rates, he said.

In the report, the Washington-based fund said the euro area's monetary authority needs to use unconventional measures to help sustain growth and meet price-stability goals.

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