Reuters: US Dollar Report: UPDATE 1-IMF says Europe weighing on global growth, eyes 2014 rebound

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UPDATE 1-IMF says Europe weighing on global growth, eyes 2014 rebound Jan 23rd 2013, 16:06 Wed Jan 23, 2013 11:06am EST * IMF predicts weak growth in 2013, rebound next year * IMF warns downside risks still significant * Activity in advanced economies still weak * Fund sees some pick up in emerging economies By Lesley Wroughton WASHINGTON, Jan 23 (Reuters) - An unexpectedly stubborn euro zone recession and weakness in Japan will weigh on global economic growth this year before a rebound in 2014 that should deliver the fastest expansion since 2010, the International Monetary Fund said on Wednesday. The IMF trimmed its 2013 forecast for global growth to 3.5 percent from the 3.6 percent it projected in October, but said it looked for a 4.1 percent expansion in 2014 if a recovery takes a firm hold in the euro zone. It said the world economy grew 3.2 percent last year. Healthy global growth rates of above 4 percent were last seen in 2010, when output expanded 5.1 percent as the global financial crisis eased. "Optimism is in the air, particularly in financial markets, and some cautious optimism may indeed be justified," IMF chief economist Olivier Blanchard said at a news conference. "Comparing to where we were at the same time last year, acute risks have decreased," he said, noting that Washington had largely dodged its so-called "fiscal cliff" and that policy actions in Europe had helped calm the region's debt crisis. Still, the IMF warned that big downside risks remained, including the possibility the euro zone's crisis could flare anew and the U.S. Congress could tighten the budget excessively. "We may have avoided the cliffs, but we still face high mountains," Blanchard said. The United States is due to run out of room under a self-imposed borrowing limit of $16.4 trillion sometime between mid-February and early March, and it also faces steep automatic spending cuts on March 1 absent action. Republicans want to use the need to raise the debt ceiling to ensure government spending is cut. They have signaled a willingness to approve a nearly four-month extension of the debt limit that would defuse immediate fears of a damaging U.S. debt default but keep a longer-term threat alive. The IMF said the U.S. economy was set to expand 2 percent this year, with growth rising above trend in the second half of this year and reaching 3 percent in 2014. "The priority is to avoid excessive fiscal consolidation in the short term, promptly raising the debt ceiling, and agree on a credible medium-term fiscal consolidation plan, focused on entitlement and tax reform," it said. POLICY CHALLENGES FOR EUROPE, JAPAN For advanced economies as a whole, the IMF said activity would likely remain weak this year with growth of just 1.4 percent, before strengthening to 2.2 percent in 2014. Blanchard said growth would be too tepid this year to lower unemployment in advanced economies. The IMF said a prolonged stagnation in the euro zone is a threat, especially if the currency bloc fails to complete fiscal and banking reforms. The IMF said Japan's economy is likely to manage 1.2 percent growth this year, helped by fiscal stimulus, an easing of monetary policy and a weaker yen, But it warned that growth was likely to slow to 0.7 percent in 2014. It urged Tokyo to adopt a more ambitious easing of monetary policy and a "credible" medium-term plan to tighten its budget. Meanwhile, growth in emerging and developing economies should strengthen to 5.5 percent this year and 5.9 percent in 2014, the IMF said, adding that supportive policies had helped boost growth although weak demand from trading partners would still be a problem. The pace of growth in China was set to increase to 8.2 percent this year and 8.5 percent in 2014, up from 2012 but still lower than the 10 percent growth rates of 2010, the fund said. Developing Asia, including China and India, will remain the fastest-growing region in the world, according to IMF forecast, with growth of 7.1 percent this year and 7.5 percent in 2014. Africa, with growth likely around 5.8 percent this year and 5.7 percent next year, is the world's second-fastest growing. Link this Share this Digg this Email Reprints

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