IMF downgrades 2015 outlook for global growth to 3.3 percent

In the July update to its World Economic Outlook, released Thursday, the Washington-based lender forecast 3.3 percent global growth for this year, which is smaller than the 3.5 percent predicted in April. It blamed the shortfall on “an unexpected output contraction in the United States” which caused spillovers to Canada and Mexico. The main culprit: The American economy, world’s biggest, shrank at a 0.2 percent annual rate from January to March, hurt by nasty weather.

Much of the global downgrade was driven by the USA, which the fund now sees growing 2.5 percent this year, compared with 3.1 percent in April.

Moody’s Investors Service also trimmed its 2015 growth forecast to 6 percent from 6.5 percent, citing bottlenecks in the deficit spending.

“The bubble has burst”, Olivier Blanchard, director of the Research Department at the International Monetary Fund, said of the Chinese stock market’s wild swings.

Slowing growth in emerging market and developing economies was also holding back momentum in the global economy.

The fund warned that China may slow faster than expected as it overhauls its economy, a downside risk “illustrated by the recent financial market turbulence”.

However, its forecast for a 3.8% rate of expansion in 2016 was maintained. It is also below the 3.4 percent growth reached past year, a sign of challenges weighing down the worldwide economy.

The group of emerging and developed economies will grow 4.2% this year, down by 0.1 percentage point in April WEO.

“Growth [however is] expected to accelerate further in 2016 to 6.5 [percent] as the budget deficit widens to the targeted 2 percent of GDP and in line with potential growth”, Peiris said.

Nevertheless, the underlying drivers for a gradual acceleration in economic activity in advanced economies “easy financial conditions, more neutral fiscal policy in the euro area, lower fuel prices, and improving confidence and labour market conditions” remain intact, the report said. “But, for the moment, the slowdown in growth is primarily led by a slowdown in real estate investment, a development we see as basically desirable”, Blanchard said.

Raising actual and potential output through a combination of demand support and structural reforms continues to be the economic policy priority, the report said.

The Chinese stock market has plunged, with the Shanghai Composite index down 30 per cent from its peak less than a month ago.

Growth in emerging market and developing economies has been estimated at 4.2 percent in 2015, down 0.1 percent from the projection made April.