IMF lowers US growth forecast for next 2 years; Warns Eurozone on debt crisis

By Nagesh Narayana | June 17 2011 1:17 PM

The International Monetary Fund (IMF) has lowered its growth forecasts for the US for the next two years from 2.7 percent to 2.5 percent in 2011 and from 2.9 percent to 2.7 percent in 2012, besides highlighting renewed weakness in the housing market as a risk.

REUTERS

A man carries boxes of tissue papers at a devastated area hit by earthquake and tsunami in Kesennuma, Miyagi Prefecture in northern Japan, March 15, 2011. IMF said Japan's slowdown has affected global economic growth.

Sponsorship Link

The fund warned that the risks facing the world economy like the Greek debt crisis and US deficit are increasing.

Revising its last review done in April, the fund, however, expected global growth to remain on track.

In April, the IMF predicted the world economy to grow at a rate of 4.3 percent in 2011 and 4.5 percent in 2012. The 187-member institution also said the mild slowdown in the second quarter of 2011 “is not reassuring.”

The fund sought to draw attention especially to the eurozone debt crisis and the budget crisis in the US in its review released on Friday.

It warned that the continuing Greek debt crisis could spiral into Spain and Portugal if Greece fails to pay its debts.

In a serious market event, a shock could be transmitted beyond the eurozone, warned the update to its World Economic Outlook (WEO), released in São Paulo, Brazil.

On Japan, the fund said the Asian country is still struggling to cut its spending following the massive devastation in the earthquake and tsunami.

At regional level, the report observed the following trends:

• Asia: Growth in emerging Asia will decelerate only slightly from the very high levels of last year. Disruptions to regional production networks due to supply constraints from Japan appear contained, although some sectors, especially automobiles and electronics, could experience strains through the summer.

• Latin America will be bolstered by commodity exports and domestic demand, but the pace of growth will ease in some economies where policies have been tightening more aggressively to reduce risks of overheating.

• Europe: Growth in Europe’s emerging economies is now projected to be higher than previously expected in 2011, followed by a softening in 2012, driven in part by a sharp domestic demand cycle in Turkey.

• Sub-Saharan Africa: Activity is projected to continue strengthening, with domestic demand remaining robust, and commodity exporters benefiting from elevated prices.

• Middle East and North Africa: economic prospects remain clouded by political and social unrest, although the outlook has improved for some oil and mineral exporters.