IMF forecast: end of emerging-economy boom; EU growth from relaxed austerity



After one more downward revision of its quarterly global growth forecasts – the seventh in a row since 2011 – the IMF now predicts that 2013 will be the slowest year of growth since the recession of 2009.

Global economic output, according to the Fund’s predictions published Tuesday, will grow by 2.9 per cent in 2013, as compared to 3.2 in 2012, 3.9 in 2011 and 5.2 in 2010.

The downward revisions, made to the previous forecast issued in July, concern almost exclusively emerging-economy regions.

The IMF slashed its GDP growth predictions for India by 1.8 percentage points, Mexico 1.7 points, Russia 1.0 point, Middle-East-North Africa 0.7 point, and Southeast Asia 0.6 point.

It’s worth recalling that in July the IMF had already cut its previous forecasts for emerging economies by substantial amounts.

For example, the 1.0 percentage-point downward adjustment made for Russia adds to the 0.9 point reduction already carried out in July.

Overall, the IMF predicts that developing- and emerging-country growth in 2013 will be barely half the pre-crisis level: 4.5 per cent in 2013 versus 8.7 per cent in 2007.

The sudden slowdown of emerging-economy growth rates has led the IMF to abandon just as suddenly the "three-speed-growth" scenario that it promoted at the IFIs’ "Spring Meetings" in April as a sure-fire recovery scenario.

According to the plan, the fast-growing BRICS (Brazil, Russia, India, China and South Africa), as well as other emerging economies, would pull the advanced countries out of the stagnation that followed the 2008-2009 global recession.

In addition, the Fund’s chief economist Olivier Blanchard asserted at a press conference to launch the World Economic Outlook that the downward trend is not just a cyclical slowdown.

He stated that, in hindsight, the strong growth in emerging economies during the past decade was due to "unusually favourable conditions" that are quickly ending, particularly booming commodity prices and China’s unsustainably high investment ratio.

During a parallel day-long conference on the challenges facing emerging countries, another IMF manager let slip that slower growth in these economies "is here to stay".

The IMF also slightly reduced predicted US growth rates because of self-inflected fiscal constraints, but the Fund’s forecasts are based on the assumption that the US debt ceiling will be lifted.

Failure to do so "would have major consequences" for the global economy.

On the other hand, the IMF adjusted upwards its growth predictions for some EU countries.

During Tuesday’s press conference to launch the World Economic Outlook, the IMF’s research team explained their forecast that growth would return to most of the eurozone in 2014 by "the extensions that have been granted under the excessive deficit procedures," i.e. the IMF’s acceptance starting earlier this year to relax fiscal deficit loan conditions or recommendations.

Hopefully the slogan "growth through austerity" will join "three-speed recovery" in the scrap-heap of discredited IMF theorems.

However it should be noted that eight of the 17 eurozone countries will experience negative growth in 2013 because of the continuing impact of austerity policies.


The full October 2013 edition of the IMF’s World Economic Outlook (200 pages) and summary material in seven languages is available here: