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IMF cuts global, Latin America growth outlook

IMF cuts global, Latin America growth outlook

Posted by Juan Gavasa on October 08, 2014

The International Monetary Fund cut its global economic growth forecasts for the third time this year today, warning of weaker growth in core euro zone countries, Japan and big emerging markets like Brazil.

In its flagship World Economic Outlook report, the Washington-based body cut its expectations for global growth to 3.3 percent this year and 3.8 percent next year. The IMF in July had expected economic growth of 3.4 percent in 2014 and 4 percent in 2015.

About Latin America, the IMF said the growth rate is forecast to decrease by half this year, to around 1.3 percent, due to declining exports as well as domestic constraints. Growth is expected to rebound to around 2.2 percent in 2015.

The scope for emerging market economies to use macroeconomic policies to support growth varies and is more limited in countries with external vulnerabilities. At the same time, emerging markets will need to deal with monetary policy normalization in the United States and possible shifts in financial market sentiment, the report said.

Potential growth rates—that is, the pace at which annual output can expand without pushing up inflation—are also being revised down. “These worse prospects are in turn affecting confidence, demand, and growth today,” Olivier Blanchard, Economic Counsellor and head of the IMF’s Research Department, affirmed.

“The challenge for both advanced and emerging market economies, is to go beyond the general mantra of ‘structural reforms,’ to identify which reforms are most needed, which reforms are politically feasible,” he said.

More generally, Blanchard added, policymakers need to “reestablish confidence through clear plans to deal with both the legacies of the crisis and the challenge of low potential growth.”

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