IMF downgrades global growth outlook

The International Monetary Fund (IMF) on Thursday cut its expectations for world economic growth this year and next to between 3% and 4%, but also praised a new funding strategy by the US Federal Reserve.

IMF chief economist Olivier Blanchard forecast that the world economy would grow by 3% to 4% this year and by about the same amount next year, in remarks by telephone from the IMF’s headquarters in Washington.

At the beginning of October the IMF had forecast in its six-monthly assessment of the economic outlook that the global economy would grow by 4,8% this year and by 4,2% in 2011.

Blanchard said that there would be differences between growth in regions, with economies in advanced countries growing by 1% to 2% and in emerging countries by 6% to 8% or more.

Blanchard also described as “courageous” a decision by the US central bank, the Federal Reserve, on Wednesday to inject an extra $600-billion into the US economy by means of a new round of so-called quantitative easing whereby the bank buys bonds from banks.

He described the attempts by the Federal Reserve to use this method of stimulating the US economy and combating unduly low inflation as historically unprecedented.

But the effects would not necessarily be positive in Europe, the outcome there depending on what European policymakers decided to do, he said in remarks to French Europe 1 radio.

The effects could be more complex for emerging economies, which were beginning to object that such injections of funding were causing capital to flow towards them.—AFP

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