IMF lowers global growth forecasts with marked divergence

The International Monetary Fund (IMF) on Tuesday lowered its global growth forecasts for the next two years with marked divergence among major economies.

The IMF predicted that the global economy would grow by 3.5 percent and 3.7 percent in 2015 and 2016. These rates are both downward revisions of 0.3 percentage point relative to its October 2014 World Economic Outlook (WEO).

"The revisions reflect a reassessment of prospects in China, Russia, the euro area, and Japan as well as weaker activity in some major oil exporters because of the sharp drop in oil prices. The United States is the only major economy for which growth projections have been raised," the IMF said in its updated WEO report.

"The global economy in 2015 is projected to grow faster than 2014, but less rapidly as we expected in October," Gian Maria Milesi-Ferretti, deputy director of IMF's Research Department, said in an interview with Xinhua in Beijing.

The Washington-based IMF forecast the world economy to expand 3.3 percent in 2014.

The IMF also predicted the U.S. economy would grow by 3.6 percent in 2015 and 3.3 percent in 2016, up 0.5 percentage point and 0.3 percentage point from previous forecasts. It forecast the euro area economy would grow 1.2 percent and 1.4 percent in 2015 and 2016, down 0.2 percentage point and 0.3 percentage point from previous forecasts.

The world economy is going through "strong and complex cross currents," Olivier Blanchard, IMF's chief economist, said at a press conference in Beijing.

"On the one hand, major economies are benefiting from the decline in the price of oil. On the other, in many parts of the world, lower long run prospects adversely affect demand, resulting in a strong undertow," Blanchard said.

The global lender forecast that the Chinese economy would expand by 6.8 percent in 2015 and 6.3 percent in 2016 respectively, down by 0.3 percentage point and 0.5 percentage point respectively from its previous predictions.

Given the scale of the Chinese economy, the 7.4 growth in 2014 is very high compared with other major economies, and China is still a "key engine" of global growth, contributing the most to global economic expansion in the past year, said Milesi-Ferretti, who oversees the WEO update.

With the Chinese economy moving in the "new normal" period, Chinese policymakers are calm facing the slight slowdown of economic growth, because China is set to transition to an economy more reliant on consumption instead of investments with more stress to be laid on quality of the growth, Milesi-Ferretti said.

China is confronted with some domestic vulnerabilities including the real estate sector, waning export demand and geopolitical risks, but the decline of the oil price will help enterprises lower operational costs. Economic restructuring in the long run is good not only for China but also the rest of the world, he added.

The IMF predicted the Japanese economy would edge up 0.6 percent and 0.8 percent in 2015 and 2016, down 0.2 percentage point and 0.1 percentage point from its previous projections.

It forecast the Russian economy to contract by 3 percent and 1 percent in 2015 and 2016, down 3.5 percentage points and 2.5 percentage points from its previous projections.