The International Monetary Fund on Tuesday trimmed its global growth forecasts for this year and next, given the policy challenges in the U.S. and slowing growth in the emerging markets.
In its latest World Economic Report, the lender cut its growth forecast for this year to 2.9 percent from 3.1 percent seen in July. The outlook for 2014 was lowered to 3.6 percent from 3.8 percent.
The IMF trimmed its growth forecast for the sixth time in a row. The improvement next year is expected to be driven largely by advanced economies.
"Global growth is in low gear, the drivers of activity are changing, and downside risks persist," the IMF report said.
The weakness in emerging markets was partly attributed to a natural cooling in growth following the stimulus-driven surge in activity after the Great Recession, the IMF report said.
"This transition is leading to tensions, with emerging market economies facing both the challenge of slowing growth and changing global financial conditions," IMF Chief Economist Olivier Blanchard said.
The U.S. economy is expected to grow 1.6 percent this year and 2.6 percent in 2014. In July, the IMF had predicted growth of 1.7 percent and 2.8 percent, respectively.
While the IMF expects the federal government shutdown in the world's largest economy to be short, it warned that "a failure to promptly raise the debt ceiling, leading to a U.S. selective default, could seriously damage the global economy."
The forecast for Eurozone was raised to 0.4 percent contraction this year from 0.6 percent seen earlier. In 2014, the 17-nation economy will likely exit recession and grow 1 percent, the IMF said, which is slightly better than the 0.9 percent expansion seen in July.
Growth forecasts for Germany and France were also upgraded. Spain is expected to contract less this year compared to the earlier projection and grow slightly faster in 2014. Forecasts for Italy were left unchanged.
Japan's growth outlook for this year was trimmed slightly to 2 percent from 2.1 percent. Next year, the economy is expected to grow 1.2 percent.
The U.K. also witnessed an upgrade to its growth projections. The British economy is now seen expanding 1.4 percent versus 0.9 percent expected in July. In 2014, growth is seen accelerating to 1.9 percent, which is better than July's forecast of 1.5 percent.
"Although the U.S. Federal Reserve recently decided to not slow the pace of its asset purchases yet and capital outflows from emerging markets have subsided somewhat, bond yields remain well above levels of early May," the IMF said.
"And there is a distinct risk that financial conditions will tighten from their current, still supportive levels."
The lender expects emerging and developing economies to expand 4.5 percent this year, which was less than the 5 percent growth predicted in July. Next year, this group is expected to register 5.1 percent growth, weaker compared to July's 5.5 percent forecast.
Within the emerging economies, China is forecast to grow 7.6 percent and 7.3 percent this year. That compares to predictions of 7.8 percent and 7.7 percent, respectively, in July.
India witnessed significant downgrade to its growth projections. The economy is now expected to grow only 3.8 percent this year versus 5.6 percent seen in July. Next year, growth is forecast at 5.1 percent, which is far weaker than the 6.3 percent predicted earlier.
The Russian economy is set to grow 1.5 percent this year and 3 percent next year, according to the IMF. These were weaker than July predictions.
While Mexico's growth forecast for this year was sharply cut to 1.2 percent, Brazil's projection was held unchanged at 2.5 percent. In 2014, Mexico is likely to grow 3 percent and Brazil by 2.5 percent, the report said.
"Policymakers have shown their determination to keep the global economy away from the precipice," the IMF said. "Aside from new cliff events, a growing worry is aprolonged period of sluggish global growth."
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