IMF reduces growth forecasts

TradingPub Admin | July 10, 2013

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One factor that could easily impact the value of the global asset markets is the economic growth predictions released by credible sources such as the International Monetary Fund.

Reduced global growth predictions
In a recent report called the World Economic Outlook Update, the IMF reduced its forecast for global growth for both 2013 and 2014. The organization projected that the worldwide economy will expand at a rate of 3.1 percent in 2013.

This latest figure represents a decrease from the rate of 3.3 percent that was predicted in April. The IMF has downgraded its forecast for the global GDP growth that will happen this year several times.

In addition, the organization reduced its prediction for 2014 global growth, stating that it will expand at a rate of 3.8 percent instead of the previously-provided estimate of 4 percent.

"Downside risks to global growth prospects still dominate," the IMF said. "While old risks remain, new risks have emerged, including the possibility of a longer growth slowdown in emerging market economies, especially given risks of lower potential growth, slowing credit, and possibly tighter financial conditions if the anticipated unwinding of monetary policy stimulus in the U.S. leads to sustained capital flow reversals."

European economic headwinds
There were various factors that the report cited for lowering its GDP forecast, including continued challenges in the euro zone. The IMF indicated that the existing recession that afflicts the region could last longer than expected, and this drawn-out period of weakness could serve to undermine global growth.

The organization reduced its economic growth forecast for Germany, predicting that it will expand at a rate of 0.3 percent this year, which represents a figure that is 50 percent below the previous projection of 0.6 percent, according to Bloomberg. As the largest economy in Europe, the business conditions in Germany draw substantial attention.

While the IMF identified the 17-nation euro zone as an area that will provide the global economy with challenges, the organization provided specific recommendations that could be used to improve the current state of the region, the media outlet reports.

The report specifically suggested that policymakers in the area work to improve labor markets and bolster existing demand, as measures such as these are crucial to improving the existing jobs situation and accelerating economic growth.

U.S. growth concerns
Another one of the major areas that the IMF report flagged as being a potential concern was economic growth in the United States. The document indicated that growth in this nation has decelerated this year, as the economy faces various headwinds.

The IMF predicted that the nation's GDP will rise at a rate of 1.75 percent in 2013 and then 2.75 percent in 2014. The organization indicated that U.S. growth could be hampered as it faces downward pressure from changes to fiscal policy and also existing monetary easing, according to USA Today.

The nation's economic state is currently coping with the budget cuts that were made in connection with sequestration, and also the possibility that the existing program of asset purchases being made by the Federal Reserve could be reduced in 2013 and then stopped entirely in 2014.

"The growth in the U.S. has slowed down, and they're catching up to that," Jay Bryson, who works as a global economist at Wells Fargo Securities LLC in Charlotte, North Carolina, stated after the document was issued by the IMF, Bloomberg reports. "This is not the U.S. economy of the 1990s that was a locomotive for the rest of the world."

Global asset markets could easily be impacted by the actual performance of the global economy.

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