Cuts US Forecast, The International Monetary Fund cut its forecast for U.S. growth in 2011 for the second time in two months, warning that further setbacks to recovery represent a growing threat to global economy, with the possible spread of European debt crisis. The U.S. economy grows 2.5 percent this year, down from 2.8 percent projected in April, the IMF said today, citing high commodity prices and bad weather in the first quarter and the housing market. The IMF forecasts growth of 2.7 percent in 2012, slower than the previous estimate of 2.9 percent. The International Monetary Fund in Washington sees the world economy expanding 4.3 percent this year, down from 4.4 percent two months ago. He left a 4.5 percent forecast for next year unchanged.
“Global activity is projected to slow in the second quarter of 2011, and then reaccelerate in the second half of the year,” the IMF said in an update of its World Economic Outlook. “For more than expected weakness in U.S. activity and financial volatility on renewed concerns the depth of the fiscal challenges in the periphery of the euro area has higher downside risks.”
The IMF urged the emerging markets of China to Indonesia, which is expected to grow three times faster than their developed counterparts, to accelerate interest rate increases. Challenges faced by the richest economies ranging from plans to reduce debt in Japan and the U.S. to improve bank balance sheets in Europe, where investors fear that will not be political support for reducing the deficit and secure funding for countries like Greece.
IMF chief economist Olivier Blanchard told a news conference in Sao Paulo, said that the lack of agreement on measures or funding for countries in the “periphery” of the euro region could lead to a sovereign defaults and derail the recovery world.
While European officials discuss how to provide additional funds for Greece and the private sector involved without causing a breach, the IMF is “hopeful” that an agreement can be found, said José VI? Als, the agency’s director of monetary policy and the capital markets department.
“The Fund is willing to help, but that there are some conditions to be met,” said Vi? Als. These are the Greek authorities to adopt measures related to loan guarantees for Europe program of Greece will be fully funded, he said.
In a separate report today, the IMF lowered its deficit forecast for the U.S. this year to 9.9 percent of gross domestic product, from an April estimate of 10.8 percent after tax income was higher and lower than expected spending. Now it’s destined to become the second largest deficit of the major mature economies, after Japan.
However, “for the U.S., it is essential to address immediately the debt ceiling and put in place a deficit reduction plan, including entitlement reform and income-tax reform,” said IMF.
The recommendation comes as U.S. lawmakers dispute over spending cuts and budget reforms, as they seek an agreement to increase the limit of 14.3 billion and debt before August 2, the date on which the Treasury Department said it has exhausted all loans their authority.
Economists surveyed by Bloomberg News from June 1 to June 8 also expect the U.S. expansion 2.5 percent, according to the median of 68 forecasts.
Developing countries will grow 6.6 percent this year and 6.4 percent in 2012, while the advanced economies will expand 2.2 percent in 2011 and 2.6 percent next year, said the IMF.
The risks of commodity prices have fallen compared to April, the agency said. Now assume oil and 106.30 a barrel in 2011, based on the average prices of UK Brent, Dubai and West Texas Intermediate crude, compared to 107.16 and April.
Crude oil for July delivery fell 1.30, or 1.4 percent, to 93.65 and a barrel on the New York Mercantile Exchange today.
However, headline inflation has accelerated and pressures “have become increasingly wide” in developing economies, the IMF said, “reflecting a higher proportion of food and fuel consumption as well as the pressure acceleration of demand. ”
Within the Group of Seven, the IMF cut its forecast for 2011 in Japan following the earthquake and tsunami of March, now expected to contract 0.7 percent this year and 2.9 percent growth next year. That compares with the predicted expansion of 1.4 percent and 2.1 percent two months ago.
Now expects growth in Italy percent this year, 0.1 percentage points lower than in April. However, the expansion in the euro area from 17 nations are expected to reach 2 percent, 0.4 percentage points more than two months ago thanks to higher than expected growth in Germany and France.
The interruption in the supply chain from the disaster of Japan has also contributed to slower growth in U.S. and investors are concerned about the recent slowdown, the report said.
“The market concerns about possible setbacks in the U.S. recovery have also emerged,” wrote the IMF. “If these risks materialize, which will affect the rest of the world – possibly seriously impairing the conditions of funding for banks and companies in advanced economies and the undervaluation of capital flows to emerging economies.”
The IMF considers that the latest U.S. data as “more of a bump in the way of something more troubling,” Blanchard, said today. He said he expects consumer spending and investment spending to continue “at a decent price.” While growth is too weak to reduce unemployment quickly, is strong enough “to avoid any possibility of a relapse into” recession, he said.
Among the major emerging markets, the faster growth in China, which will expand 9.6 percent in 2011 and 9.5 percent next year, unchanged from the projections in April. The IMF predicted growth in Brazil to cut 4.1 percent this year, 0.4 percentage points lower than before, and 3.6 percent in 2012. The forecasts for Spain remained at 8.2 percent and 7.8 percent respectively.
These fast-growing countries should use the exchange rate flexibility and tools which may include capital controls “to help contain the risks of boom and bust cycles,” the IMF said.
“Global activity is projected to slow in the second quarter of 2011, and then reaccelerate in the second half of the year,” the IMF said in an update of its World Economic Outlook. “For more than expected weakness in U.S. activity and financial volatility on renewed concerns the depth of the fiscal challenges in the periphery of the euro area has higher downside risks.”The IMF urged the emerging markets of China to Indonesia, which is expected to grow three times faster than their developed counterparts, to accelerate interest rate increases. Challenges faced by the richest economies ranging from plans to reduce debt in Japan and the U.S. to improve bank balance sheets in Europe, where investors fear that will not be political support for reducing the deficit and secure funding for countries like Greece.
IMF chief economist Olivier Blanchard told a news conference in Sao Paulo, said that the lack of agreement on measures or funding for countries in the “periphery” of the euro region could lead to a sovereign defaults and derail the recovery world.
While European officials discuss how to provide additional funds for Greece and the private sector involved without causing a breach, the IMF is “hopeful” that an agreement can be found, said José VI? Als, the agency’s director of monetary policy and the capital markets department.
“The Fund is willing to help, but that there are some conditions to be met,” said Vi? Als. These are the Greek authorities to adopt measures related to loan guarantees for Europe program of Greece will be fully funded, he said.
In a separate report today, the IMF lowered its deficit forecast for the U.S. this year to 9.9 percent of gross domestic product, from an April estimate of 10.8 percent after tax income was higher and lower than expected spending. Now it’s destined to become the second largest deficit of the major mature economies, after Japan.
However, “for the U.S., it is essential to address immediately the debt ceiling and put in place a deficit reduction plan, including entitlement reform and income-tax reform,” said IMF.
The recommendation comes as U.S. lawmakers dispute over spending cuts and budget reforms, as they seek an agreement to increase the limit of 14.3 billion and debt before August 2, the date on which the Treasury Department said it has exhausted all loans their authority.
Economists surveyed by Bloomberg News from June 1 to June 8 also expect the U.S. expansion 2.5 percent, according to the median of 68 forecasts.
Developing countries will grow 6.6 percent this year and 6.4 percent in 2012, while the advanced economies will expand 2.2 percent in 2011 and 2.6 percent next year, said the IMF.
The risks of commodity prices have fallen compared to April, the agency said. Now assume oil and 106.30 a barrel in 2011, based on the average prices of UK Brent, Dubai and West Texas Intermediate crude, compared to 107.16 and April.
Crude oil for July delivery fell 1.30, or 1.4 percent, to 93.65 and a barrel on the New York Mercantile Exchange today.
However, headline inflation has accelerated and pressures “have become increasingly wide” in developing economies, the IMF said, “reflecting a higher proportion of food and fuel consumption as well as the pressure acceleration of demand. ”
Within the Group of Seven, the IMF cut its forecast for 2011 in Japan following the earthquake and tsunami of March, now expected to contract 0.7 percent this year and 2.9 percent growth next year. That compares with the predicted expansion of 1.4 percent and 2.1 percent two months ago.
Now expects growth in Italy percent this year, 0.1 percentage points lower than in April. However, the expansion in the euro area from 17 nations are expected to reach 2 percent, 0.4 percentage points more than two months ago thanks to higher than expected growth in Germany and France.
The interruption in the supply chain from the disaster of Japan has also contributed to slower growth in U.S. and investors are concerned about the recent slowdown, the report said.
“The market concerns about possible setbacks in the U.S. recovery have also emerged,” wrote the IMF. “If these risks materialize, which will affect the rest of the world – possibly seriously impairing the conditions of funding for banks and companies in advanced economies and the undervaluation of capital flows to emerging economies.”
The IMF considers that the latest U.S. data as “more of a bump in the way of something more troubling,” Blanchard, said today. He said he expects consumer spending and investment spending to continue “at a decent price.” While growth is too weak to reduce unemployment quickly, is strong enough “to avoid any possibility of a relapse into” recession, he said.
Among the major emerging markets, the faster growth in China, which will expand 9.6 percent in 2011 and 9.5 percent next year, unchanged from the projections in April. The IMF predicted growth in Brazil to cut 4.1 percent this year, 0.4 percentage points lower than before, and 3.6 percent in 2012. The forecasts for Spain remained at 8.2 percent and 7.8 percent respectively.
These fast-growing countries should use the exchange rate flexibility and tools which may include capital controls “to help contain the risks of boom and bust cycles,” the IMF said.
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