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Money Exchange: World economic growth forecasts slashed

Published: 24 Jan at 11 AM Tags: Euro Exchange Rate, Dollar Exchange Rate, Euro Crisis, UK, Economy,

The International Monetary Fund (IMF) published its ‘World economic outlook’ yesterday, downgrading the growth forecasts for the global economy and advised that any economic upturn is expected to be more gradual than previously thought.

The report states that in its opinion, while financial conditions improved in the fourth quarter of 2012, “a broad set of indicators for global industrial production and trade suggests that global growth did not strengthen further”.

The IMF has now cut its growth forecasts for world output in 2013 and 2014 by 0.1% to 3.5% and 4.1% respectively. This follows 3.9% growth in 2011 and 3.2% growth in 2012.

The report also forecasts that the US will grow by 2% this year, down from an earlier estimate of 2.1% in October. Similarly, the IMF has slashed the growth forecast for the UK to just 1% in 2013.

Meanwhile, the report forecasts that the euro zone will now contract by 0.2% on the whole this year, compared with the initial estimate for a 0.2% expansion, owing to a delayed recovery.

The IMF report concludes that “If crisis risks do not materialise and financial conditions continue to improve, global growth could be stronger than projected. However, downside risks remain significant, including renewed setbacks in the euro area and risks of excessive near-term fiscal consolidation in the United States. Policy action must urgently address these risks.”

In the UK, Prime Minister David Cameron gave his long awaited and often delayed speech on the future of the UK and Europe by committing his party to holding a referendum on whether the UK should remain in the EU. He promised by the referendum will be held during the first half of the next parliament.

Cameron said in the speech “It is time for the British people to have their say; it is time to settle this question over Britain and Europe". He committed himself to keeping Britain in the EU based on successful negotiations with Europe, saying he would fight with "heart and soul" to win the vote.

Cameron also warned that were the UK to leave the EU it would be a "one way ticket", which in his opinion could damage the UK's standing on the international stage.

Meanwhile, the Office for National Statistics (ONS) reported that the UK claimant count fell by 12,000 in December to 1.56 million. The unemployment rate is 7.7% of the economically active population, down 0.1% in the period of June to August 2012 and down 0.7% on a year earlier.

In the US, after a weak start, the dollar made gains against most major currencies as a short-term extension was approved to the US debt ceiling. Investors breathed a sigh of relief as the US House approved a three-month suspension of the $16 trillion debt limit giving lawmakers more time to resolve other fiscal issues. When the suspension is lifted, the US government will be able to increase the limit to what is required to meet the Treasury’s financing needs.