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The Washington-based International Monetary Fund (IMF) on Tuesday called on different countries to take appropriate reform measures to tackle their specific economic challenges against the backdrop of a three-speed recovery.
LOWER GROWTH OUTLOOK
The global lender lowered its world economic growth rate forecast to 3.3 percent in 2013, 0.2 percentage point lower than its earlier estimate in January, warning that "old dangers remain and new risks have come to the fore."
Developed countries will see their economies grow by 1.2 percent this year on average and 2.2 percent next year respectively, 0.1 percentage point lower and 0.1 percentage point higher than its earlier estimates respectively, the IMF said in its latest World Economic Outlook (WEO) report.
Emerging market and developing economies will grow 5.3 percent this year and 5.7 percent next year respectively, 0.2 percentage point lower and 0.1 percentage point lower than its earlier forecasts respectively, noted the IMF's flagship report.
Recent good news about the United States has come with renewed worries about the euro area. Given the strong inter-connections between countries, an uneven recovery is also a dangerous one, IMF chief economist Olivier Blanchard on Tuesday said at a press conference releasing the report.
BETTER FISCAL ADJUSTMENT IN U.S.
The IMF predicted that the U.S. economy would expand 1.9 percent this year before firming to a 3.0-percent growth in 2014, saying that the nation should take a better tuned pace of fiscal consolidation in the near term and in the future.
U.S. private demand is actually strong, spurred in part by the anticipation of low interest rates policy of the Federal Reserve and by pent-up demand for housing and durable goods, Blanchard observed.
In the world's largest economy, the focus should be on " defining the right path of consolidation." There should be both less and better fiscal consolidation now and a commitment to more fiscal consolidation in the future, Blanchard noted before the upcoming Spring Meetings of the IMF and World Bank scheduled to kick off on April 19.
EUROZONE'S SUBPAR PERFORMANCE
The eurozone will continue to be a drag on global recovery, as its economy was predicted to contract 0.3 percent this year before picking up steam to grow 1.1 percent in 2014.
In the short term, global economic risks mainly relate to developments in this currency bloc, including uncertainty about the fallout from events in Cyprus and politics in Italy as well as vulnerabilities in the periphery countries, according to the report.
In the eurozone, institutional progress has been made over the past year, in particular on creating a road map for a banking union. Yet this is not enough. The interest rates facing borrowers in periphery countries are still too high to secure the recovery, and there is a need for further and urgent measures to strengthen banks, Blanchard argued.
Eurozone nations need to adopt structural reforms critical to their competitiveness but it will take some time, Jorg Decressin, deputy director of the IMF's research department, said at the press conference.
RISKS, SLOWDOWN IN EMERGING MARKETS
Emerging market economies face a different set of challenges, one of which is handling capital flows. Fundamentally attractive prospects in emerging market economies, together with low interest rates in advanced economies, are likely to lead to continuing net capital inflows and exchange rate pressure in many emerging market economies, Blanchard contended.
Emerging market and developing economies will grow 5.3 percent this year and 5.7 percent next year respectively, 0.2 percentage point lower and 0.1 percentage point lower than its earlier forecasts respectively, said the global lending organization.
Capital flows can be volatile, making macroeconomic management more difficult. The challenge for recipient countries is to accommodate the underlying trends while reducing the volatility of the flows when they threaten economic or financial stability, Blanchard warned.
The IMF predicted that the Chinese economy was to grow 8.0 percent in 2013 and 8.2 percent in 2014, respectively. The forecasts were done before China's Monday figures showed that its gross domestic product (GDP) growth rate unexpectedly slowed to 7. 7 percent in the first quarter, triggering jitters on the global financial markets.
The IMF is studying the latest Chinese GDP data and sticking to its economic forecasts of China for the time being, Decressin told reporters.
Despite the slight downtick of emerging markets' growth rates, IMF Managing Director Christine Lagarde last week highlighted the role of emerging markets in sustaining global economic growth over the past years, saying "for the past half decade, the emerging markets and developing economies have led the world's recovery-- accounting for a remarkable three-quarters of global growth."
