PRODUCT PROFILE

Latest Dublin Prices

IMF says Europe holds back world growth

Wednesday, January 23 16:10:48

An unexpectedly stubborn euro zone recession and weakness in Japan will weigh on global economic growth this year before a rebound in 2014 that should deliver the fastest expansion since 2010, the International Monetary Fund said today.

The IMF trimmed its 2013 forecast for global growth to 3.5 percent from the 3.6 percent it projected in October, but said it looked for a 4.1 percent expansion in 2014 if a recovery takes a firm hold in the euro zone. It said the world economy grew 3.2 percent last year.

Healthy global growth rates of above of above 4 percent were last seen in 2010, when output expanded 5.1 percent as the global financial crisis eased.

The IMF said activity in advanced economies would likely remain weak this year with growth of just 1.4 percent before strengthening to 2.2 percent in 2014. In October, it projected developed economies would expand 1.5 percent in 2013.

"Policy actions have lowered acute risks in the euro area and the United States," the IMF said in an update of its World Economic Outlook. "However, downside risks remain significant, including renewed setbacks in the euro area and risks of excessive near-term fiscal consolidation in the United States."

The United States is due to run out of room under a self-imposed borrowing limit of $16.4 trillion sometime between mid-February and early March.

Republicans, who want to use the need to raise the debt ceiling as leverage to exact deep spending cuts, have signaled a willingness to pass a nearly four-month extension of the debt limit, defusing immediate fears of a damaging U.S. debt default but keeping a longer-term threat alive.

The IMF said the U.S. economy was set to expand 2 percent this year, with growth rising above trend in the second half of this year and reaching 3 percent in 2014.

"The priority is to avoid excessive fiscal consolidation in the short term, promptly raising the debt ceiling, and agree on a credible medium-term fiscal consolidation plan, focused on entitlement and tax reform," it said. (C ) Reuters