IMF Upgrades U.S. Growth Projections But Downgrades Global Outlook

The International Monetary Fund on Tuesday upgraded its economic-growth forecast for the U.S. based on stronger demand fueled by lower oil prices, but the organization downgraded its global outlook because of continued fallout from the 2008 financial crisis.

The U.S. economy will expand 3.6 percent this year, up from the October projection of 3.1 percent, the IMF forecast said. Growth next year will be lower, at 3.3 percent, the IMF said, but that is up 0.3 percentage points from the earlier projection.

The global economy is a different story.

The 3.5 percent growth forecast for this year is 0.3 percentage points lower than the IMF projected in October. Next year, global economic output will be 3.7 percent, also down 0.3 points from the October forecast, the IMF said.

Still, the global forecast is an improvement over last year’s 3.3 percent growth.

The steep drop in oil prices in recent months — down 55 percent since September — has affected countries differently, and those “crosscurrents” make for “a complicated picture,” said Olivier Blanchard, the IMF’s economic counselor and director of research.

“It means good news for oil importers, bad news for oil exporters,” he said in releasing the group’s World Economic Outlook.

“Good news for commodity importers, bad news for exporters,” Blanchard said. “Continuing struggles for the countries which show scars of the crisis, and not so for others.”

The U.S. was more aggressive in addressing the crisis than most European nations, so the falling oil prices add to a more-positive economic outlook.

U.S. growth this year is forecast to be significantly higher than last year’s 2.4 percent, the IMF said. Lower oil prices are helping boost consumer spending, and although the Federal Reserve ended a key stimulus program last year, its accommodative monetary policy continues to help fuel growth, the IMF said.

Cheaper oil is helping in Europe, as well, but investment is weak there and risks of deflation are growing, the IMF said.

The economy of the 19-nation Eurozone will expand just 1.2 percent this year, down 0.2 percentage points from October’s forecast, the IMF said. Growth will be 1.4 percent next year, down 0.3 points from the earlier projection.

In response to the weak growth, the European Central Bank this week is expected to announce a bond-buying stimulus program similar to the one the Federal Reserve operated off-and-on from late 2008 until October.

The IMF also downgraded its forecast for China, another key global economic engine, because of a slower pace of investment growth there.

The Chinese economy will expand 6.8 percent this year, down 0.3 percentage points from the October forecast. Growth will slow further to 6.3 percent next year, down 0.5 percentage points from the earlier projection, the IMF said.

This article appeared in print in the January 21st, 2015 edition of Hamodia.