IMF cuts global economic growth forecasts

Badly handled budget cuts in the United States and a slowdown in activity in big developing countries mean the global economy will expand more slowly than expected this year, the International Monetary Fund has said. 

It now expects global growth of 2.9% this year, a cut of 0.3% from July's estimate. In 2014 it expects global growth of 3.6%, down 0.2%.

It cited weakness in emerging economies for the cut.

"Global growth is still weak, its underlying dynamics are changing, and the risks to the forecast remain to the downside," it warned in its World Economic Outlook - its biannual assessment of the global economy.

It said despite an improvement in growth in advanced economies such as the UK and US, a slower pace of expansion in emerging economies such as Brazil, China and India, was holding back global expansion.

It expects growth in Russia, China, India and Mexico to be slower than it forecast in July.

In part, it says this is due to expectations of a change in policy by US central bank the Federal Reserve. Simply the expectation that the US could trim back its efforts to stimulate the US economy has already had an impact on interest rates in emerging economies, the IMF said.

It said an increasing belief that China's growth rate would slow would also hit global growth.

The IMF expects the US to drive global growth.

But it warns that the political standoff over raising the US government's borrowing limit, if it results in the US defaulting on its debt payments, "could seriously damage the global economy".

It expects growth of 1.6% in the US this year and 2.6% next year, down 0.1% and 0.2% from its July forecast.

In the Euro area, the IMF says business confidence indicators suggest activity is close to stabilising in periphery economies such as Italy and Spain and already recovering in core economies such as Germany.

Overall, it predicts growth will fall 0.4% this year, an improvement of 0.1% on its July prediction, and grow 1% next year.

"In short, the recovery from the crisis continues, albeit too slowly ... the architecture of the financial system is evolving, and its future shape is still unclear. These issues will continue to shape the evolution of the world economy for many years to come," said Olivier Blanchard, economic counsellor at the IMF.