WASHINGTON: The International Monetary Fund on Tuesday lowered its growth forecast for Pakistan and the global economy and warned the outlook could get bleaker if the US political standoff over finances drags on.
The Pakistani economy is expected grow 2.3 per cent year-over-year in 2013 and 3.6 per cent in 2014, the IMF said, revising July estimates down by 0.7 and 0.1 percentage points per year, respectively.
The global economy’s growth percentages were also revised downwards with estimates being brought down by 0.3 and 0.2 percentage points.
Four years after the Great Recession ended, “global growth remains in low gear,” the IMF said in its World Economic Outlook report.
Advanced economies, in particular the United States, are showing signs of pick-up, while emerging-market (EM) economies, although still accounting for most global growth, are losing more momentum than previously thought, the IMF said.
“Global growth is still weak, its underlying dynamics are changing, and the risks to the forecast remain to the downside,” the IMF said.
Two risks were a particular worry, it pointed out the US Federal Reserve’s plan to exit the exceptionally easy-money policy it has pursued to pull away from the brink of depression, and China’s slowing growth.
IMF said that financial markets were growing convinced that loose US monetary policy was reaching a “turning point” after Fed officials started talking in May about tapering their program of $85 billion a month on asset purchases, known as quantitative easing.
Though the Fed has yet to begin to taper, the mere talk of tapering QE led to an unexpectedly large increase in long-term yields in the United States and many other economies, slowing capital inflows to emerging-market economies, it said.
As for China, it appears increasingly likely that the world’s second-largest economy will grow more slowly over the medium term than in the recent past, a prospect especially affecting the commodity exporters among the emerging and developing economies.
Overall, the IMF left unchanged its gross domestic product (GDP) growth forecasts for the advanced economies, at 1.2 per cent in 2013 and 2.0 per cent in 2014.
In the US, growth in the world’s largest economy would tick along at 1.6 per cent in 2013, picking up to a 2.6 per cent pace next year, slightly less activity than the IMF projected in July.
“At the time of writing, a political standoff in the United States has led to a shutdown of its federal government. The projections assume that the shutdown is short, discretionary public spending is approved and executed as assumed in the forecast, and the debt ceiling – which may be reached by mid-October – is raised promptly,” the IMF said.
“While the damage to the US economy from a short shutdown is likely to be limited, a longer shutdown could be quite harmful. And, even more importantly, a failure to promptly raise the debt ceiling, leading to a US selective default, could seriously damage the global economy.”
The IMF said the eurozone’s recession this year would not be quite so deep, a 0.4 per cent contraction, a 0.1 percentage point improvement from its July forecast. The European single-currency bloc is expected to return to growth next year, albeit at a tepid 1.0 per cent annual rate.
Japan, battling years of deflation and stagnation, is showing an “impressive pickup” in growth thanks to the Bank of Japan’s easing policies and the government’s stimulus, the IMF said.
It estimates the new policies may have boosted GDP by about 1.0 per cent. In minor revisions, the Fund predicts the world’s third-largest economy will grow 2.0 per cent in 2013, but slow to 1.2 per cent in 2014 under pressure from tightening fiscal policy.
Growth forecasts for China were lowered a few tenths of a point for both years, to 7.6 percent in 2013 and 7.3 percent in 2014.
Estimates for India and Mexico growth were slashed the most, down by 1.8 points and 1.7 points for 2013, to 3.8 per cent and 1.2 per cent, respectively.
Growth in Brazil was projected at 2.5 per cent for both years, but the 2014 number was lowered by 0.7 point.
Slowdowns in China, India and Brazil have been largely responsible for the downgrade on growth in emerging market and developing economies. The IMF cut about half a point off its July update for that group of economies, to 4.5 per cent in 2013 and 5.1 per cent in 2014.
Russia took a one-point hit, with GDP expected to expand only 1.5 percent this year, before picking up to 3.0 per cent.
Growth for the group combining the Middle East, North Africa, Afghanistan and Pakistan was lowered to 2.3 per cent this year, while Sub-Saharan Africa would see it slip to 5.0 per cent.
The IMF cautioned that the end of US quantitative easing could result in a greater and longer-lasting tightening of global financial conditions than currently expected, putting brakes on growth.
“What is more worrisome, monetary policy in the advanced economies could be stuck at the zero-interest bound for many years.
Over time, worrisomely high public debt in all major advanced economies and persistent financial fragmentation in the euro area could then trigger new crises.”