The Herald Bulletin

Afternoon Update

Nation & World

April 9, 2014

IMF: World economy is stronger but faces threats

WASHINGTON — The global economy is strengthening but faces threats from super-low inflation and outflows of capital from emerging economies, the International Monetary Fund warned Tuesday.

The lending organization expects the global economy to grow 3.6 percent this year and 3.9 percent in 2015, up from 3 percent last year. Those figures are just one-tenth of a percentage point below the IMF's previous forecasts in January.

The acceleration is being driven mostly by strong growth in advanced economies, including the United States and the United Kingdom, and a modest recovery in the 18 nations that use the euro currency.

By contrast, developing nations, particularly Russia, Brazil and South Africa, are now expected to grow much more slowly than the IMF forecast three months ago. Russia's economy will likely suffer as a result of its fight with the U.S. and Europe over the Ukraine. Others face high interest rates, which are intended to fight inflation but could slow growth.

The IMF, in its World Economic Outlook report, sharply upgraded its growth forecasts for the U.K., Germany and Spain. It expects the eurozone to grow 1.2 percent in 2014 and 1.5 percent in 2015 after shrinking 0.5 percent last year. Both estimates are one-tenth of a percentage point higher than the IMF's January forecasts.

The IMF made no changes to its forecasts for U.S. growth, which it estimates at 2.8 percent this year and 3 percent in 2015.

"The recovery ... is becoming not only stronger but broader," Olivier Blanchard, the IMF's chief economist, said at a news conference Tuesday.

The U.S. and European economies are benefiting from smaller government spending cuts and tax increases, Blanchard said. Banks are improving their finances. And investors are increasingly willing to buy European government debt.

Japan, however, is forecast to expand just 1.4 percent next year, down from the IMF's previous projection of 1.7 percent, and just 1 percent in 2015. Higher sales taxes are expected to weigh on growth.

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