As expected the International Monetary Fund has cut its forecast for world economic growth this year and next.
The cut came a week after the World Bank hacked its growth forecasts.
The report also came a day after IMF Managing Director Christine Lagarde warned that the global economy could slide into a “1930s moment” unless Europe gets a grip on its debt crisis and other major economies, including the US and China, meet their responsibilities.
Greece is still arguing with bondholders about a day that has to be done before the country get’s a major infusion of bailout funds. Greece has a 14 billion euro bond maturing in late March.
The report was also issued as markets eased ahead of the first meeting of the year of the US Federal Reserve which is expected to produce new, expanded forecasts and other commentary tomorrow morning our time in the post-meeting statement and press conference by chairman Ben Bernanke.
Later this morning, the Bureau of Statistics will produce the December quarter and 2011 consumer inflation data, which will be influential in the Reserve Bank’s interest rate considerations in 10 day’s time.
Like the World Bank, the IMF cited growing financial strains and rising downside risks as Europe’s debt crisis entered a "perilous new phase."
In an update of its world economic outlook, the IMF said it expects global output to grow by 3.3% in 2012, down from 3.8% in 2011 and from a September forecast of 4%.
Global output is forecast to expand 3.9% in 2013, down from a previous forecast of 4.5%.
“Global growth prospects dimmed and risks sharply escalated during the fourth quarter of 2011, as the euro-area crisis entered a perilous new phase,” the IMF said.
The IMF said it now expects rising sovereign bond yields and deleveraging by banks to push the euro-zone economy into a “mild recession” in 2012, although data issued this week suggested that private industry in the eurozone is doing better than expected.
However, this IMF was slightly more optimistic than the World Bank which last week forecast 2012 growth of 2.5% and 3.1% for 2013..
The IMF’s forecasts for growth in advanced economies have similarly been cut to just 1.2% this year and 1.9% next year, while it predicts eurozone to be in a mild recession in 2012, contracting by 0.5% before growing by an anemic 0.8% next year.
The IMF had previously projected growth of 2.1% in 2012 and 1.5% in 2013.
No specific new forecasts for Australia – the IMF predicted 2012 and 2013 growth of 3.3% and 3.4% in it’s World Economic Outlook last September.
But it has lowered growth prospects for "Other Advanced Economies" for this year to 2.6% from 3.7% previously.
The report came a day after IMF Managing Director Christine Lagarde warned that the global economy could slide into a “1930s moment” unless Europe gets a grip on its debt crisis and other economic engines, including the United States and China, meet their responsibilities.
The IMF left its forecast for US economic growth in 2012 unchanged at 1.8%, but trimmed 2012 growth to 2.2%, from September’s 2.5%. The first US estimate of US economic growth for the December quarter and 2011 will be issued on Friday night.
Japan is forecast to rebound from a 0.9% contraction in 2011 to grow 1.7%, down from a September forecast of 2.3%. Japan is forecast to grow 1.6% in 2012, down from the earlier estimate of 2%.
While the Fund cut eurozone growth forecasts, the updated projections "see global activity decelerating but not collapsing."
The IMF expects most advanced economies to avoid falling back into recession, while emerging and developing economies are forecast to slow from a fast growth pace in 2011.
But the report emphasized that the forecast is based on the assumption that euro-zone policy makers intensify their efforts to address the crisis and that policies limit deleveraging by euro-zone banks, avoiding a severe credit crunch.
Overall, emerging and developing economies are forecast to see 2012 growth of 5.4%, down from a September estimate of 6.1%.
Growth in 2013 is forecast at 5.9%, down from the September outlook of 6.5%.
But the IMF said that despite a substantial downward revision of three quarters of a percentage point, "developing Asia is still projected to grow most rapidly at 7.5% on average in 2012–13."
China is now expected to see growth slow from 9.2% in 2011 to 8.2% in 2012, re-accelerating to 8.8% in 2013.
The IMF previously forecast growth of 9% in 2012 and 9.5% in 2013.
China grew at an annual 9.2% in 2011, according to figures issued last week, with December quarter growth hitting 8.9%.
That’s good news for Australia and its surprising that many commentators in Australian papers missed that news of failed to appreciate their meaning.
