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IMF Cuts World Growth Outlook Amid Ukraine Worries

April 8, 2014
The International Monetary Fund cuts its growth forecast for the global economy, pointing to the threat from the Ukraine crisis and the slowdown in major emerging economies.

WASHINGTON -- The International Monetary Fund cut its growth forecast for the global economy Tuesday, pointing to the threat from the Ukraine crisis and the slowdown in major emerging economies.

While the world economy has picked up pace, anchored by the United States and China, the global crisis lender pointed to looming risks, from the standoff between Russia and the West over Ukraine to poorly handled policy in countries like Brazil to deflation in the euro area.

"The recovery which was starting to take hold in October is becoming not only stronger, but also broader," said chief IMF economist Olivier Blanchard, introducing the IMF's latest World Economic Outlook report. "The various brakes that hampered growth are being slowly loosened. Fiscal consolidation is slowing, and investors are less worried about debt sustainability."

The report, released ahead of the annual IMF-World Bank spring meetings in Washington beginning Thursday, nevertheless cut back the global growth forecast to 3.6% this year and 3.9% in 2015. The global economy grew 3.0% in 2013.

But demand growth is weak, companies are still laden with debt and credit demand is tepid, and Blanchard said the European Central Bank needs to move to counter dangerously low inflation.

He said the ECB has already studied its various options for more economic stimulus.

"I know that the ECB is looking at them," he said. "And we hope that they will implement them as soon as they are technically ready to do so. Everything should be done to try to avoid [deflation]."

Japan is in a similar situation, its stimulus still facing challenges, including deflation and last week's hike in consumption taxes, which could send the economy into recession this quarter. The forecast for growth this year was cut to 1.4% from 1.7%, and only 1.0% next year.

The most serious problem the IMF sees is the one that has Russia at odds with the West over Ukraine. The IMF slashed its prediction for Russian growth to 1.3% this year, compared with 1.9% in January, but Blanchard said the crisis probably merits a further cut to the outlook.

The turmoil has sparked an exodus of capital from Russia, which could force it to increase interest rates.

In addition, intensified sanctions and counter-sanctions could disrupt trade and finance, including markets for oil, gas and food commodities, including corn and wheat.

Copyright Agence France-Presse, 2014

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