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IMF revises global outlook for 2013-14

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IMF revises global outlook for 2013-14

The global economy faces strong headwinds, according to the International Monetary Fund, which downgraded its global outlook for this year and next. Capital outflows from emerging markets and an ongoing US budget impasse are weighing heavily on the global economy, and could potentially reverse the pace of recovery in 2014.

The global economy will grow 2.9 percent this year and 3.6 percent in 2014, according to a new report from the IMF. The growth figures are revised from a July forecast that called for 3.1 percent growth in 2013 and 3.8 percent in 2014. Emerging markets are expected to grow 4.5 percent this year, compared to the July prediction of 5 percent, as the IMF revised its forecasts for China, India, Russia and Mexico.

Despite the US budget impasse, developed countries are gradually improving, the IMF acknowledged. However, sluggish growth in emerging economies is “leading to tensions,” according to IMF chief economist Oliver Blanchard. According to Blanchard, “emerging-market economies [are] facing the dual challenges of slowing growth and tighter global financial conditions.”

Earlier this year the markets fell sharply after China reported an unexpected slowdown in its economic expansion. Since then, India has found itself in the midst of a currency crisis due to its ballooning account deficit, with the government having failed to restore confidence in an economy on the brink of disaster.

The IMF kept its growth forecast the same for Japan, calling for 2 percent growth this year and 1.2 percent in 2014. The outlook on the euro area improved, with the IMF raising its forecast from -0.6 percent to -0.4 percent this year. It now expects the Eurozone to expand 1 percent next year, compared to its earlier projection of 0.9 percent.

The IMF’s revised growth forecast comes after the international creditor factored in a resolution to the US government’s partial shutdown before October 17, when the government will have exhausted its borrowing authority. A failure to reach a resolution before that time could lead to an unprecedented default that could rock the global markets for years.

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