The International Monetary Fund on Tuesday trimmed its growth projections for the global economy as it saw a three-speed recovery evolving mainly owing to the diverging paths of the U.S. and the euro area.
In the latest issue of its semi-annual World Economic Outlook, the Washington-based lender cut the global growth forecast for this year to 3.3 percent from 3.5 percent predicted in January. The growth forecast for 2014 was slashed to 4 percent from 4.1 percent expansion seen earlier.
"What was until now a two-speed recovery, strong in emerging market and developing economies but weaker in advanced economies, is becoming a three-speed recovery," the IMF Chief Economist Olivier Blanchard said.
"Emerging market and developing economies are still going strong, but in advanced economies, there appears to be a growing bifurcation between the United States on one hand and the euro area on the other."
The U.S. economy is expected to grow 1.9 percent this year, which is smaller than the 2 percent expansion forecast in January. The growth forecast for next year was left unchanged at 3 percent.
While private demand in the world's largest economy is showing strength as credit and housing markets heal, the larger-than-expected fiscal adjustment is likely to limit growth, the report said. The growth projected for 2013 is insufficient to make a large dent in the still-high unemployment rate, the lender added.
"While the sequester has decreased worries about debt sustainability, it is the wrong way to proceed," Blanchard said. "The focus should be on defining the right path of consolidation."
The crisis-hit euro area is forecast to shrink 0.3 percent this year, which is worse than the earlier projection of 0.2 percent contraction. In 2014, the 17-nation economy is expected to grow 1.1 percent, a tad faster than the previous forecast of 1 percent growth.
Within Eurozone, France, Italy and Spain are forecast to witness economic contractions this year. Germany is expected to log 0.6 percent growth. The insufficient progress toward stronger economic and monetary union could lead to a slower than expected recovery, the IMF warned.
The benefit of the improved financial conditions have not reached the currency bloc's companies and households as banks are still weighed down by poor profitability and lack of capital, the report said. Further, continued fiscal adjustment, competitiveness problems, and balance sheet weaknesses hamper growth in the region.
"The interest rates facing borrowers in periphery countries are still too high to secure the recovery, and there is a need for further and urgent measures to strengthen banks, without weakening the sovereigns," Blanchard said.
Meanwhile, the IMF raised the forecast for Japan to 1.6 percent growth this year from 1.2 percent expected earlier, citing the new government's aggressive monetary stimulus plans. Next year, the Japanese economy is seen growing 1.4 percent, double the 0.7 percent expansion seen earlier.
The U.K. witnessed a downgrade in projections. The British economy is now expected to grow 0.7 percent this year and 1.5 percent in 2014, which are less than the 1 percent and 1.9 percent expansions seen in January.
"Given the strong interconnections between countries, an uneven recovery is also a dangerous one," Blanchard said. Some tail risks have decreased, but it is not time for policymakers to relax."
The IMF expects growth in emerging market and developing economies to remain robust due to resilient consumer demand, supportive macroeconomic policies, and a revival of exports.
However, China's 2013 growth forecast was cut to 8 percent from 8.2 percent. The outlook for 2014 was lowered to 8.2 percent from 8.5 percent.
India is expected to grow 5.7 percent this year and 6.2 percent in 2014. Earlier, the Indian economy was projected to grow 5.9 percent this year and 6.4 percent in 2014.
Brazil's growth is forecast to improve to 4 percent next year from 3 percent this year. The Brazilian economy was earlier expected to expand 3.5 percent this year.
While emerging Europe may witness accelerating pace of recovery due to rebound in demand from advanced economies in the region, some economies in the Middle East and North Africa may remain hurt with difficult internal transitions, the report said.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.