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IMF cuts global growth forecast, underestimated eurozone recession

IMF cuts global growth forecast, underestimated eurozone recession
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More economic gloom from the International Monetary Fund. It has been forced to trim its global growth forecast again, this time to 3.1 percent, down from its April projection of 3.3 percent.

It is the fifth time it has done that since early last year.

In its mid-year health check of the world economy, the IMF raised its forecast for Japan to 2.0 percent growth this year, the US was trimmed to 1.7 percent and it sees the eurozone contracting by 0.6 percent.

IMF Chief Economist Olivier Blanchard said: “We continue to predict negative growth in the eurozone in 2013. This reflects not only negative growth in Spain and Italy, but also lower growth in the core [countries of the region]. We think that the growth will turn positive in 2014 but it will remain very low.”

The IMF admitted it had underestimated the depth of the recession in Europe, though does think that should end next year with the region’s economy expanding by almost one percent .

The IMF said it remains concerned about Britain’s weak recovery though did increase its projection for growth in Britain to 0.9 percent this year from its previous estimate of 0.7 percent

Its growth prediction for developing countries was reduced to five percent, including a lower forecast for China, Brazil, Russia, India and South Africa.

“After years of strong growth, the BRICS are beginning to run into speed bumps,” said Blanchard. And while growth in emerging countries has slowed, inflation has not fallen with it, suggesting the economies are already growing close to their potential, he said.

“This has an important implication: that growth in emerging markets will remain high, but maybe substantially lower than it was before the crisis.”

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