IMF downgrades forecast for world, emerging market economies

LIMA, Peru -- China's slowdown and tumbling commodity prices will push global economic growth this year to the lowest level since the recession year 2009, the International Monetary Fund predicted Tuesday.

In a report Tuesday in advance of the IMF-World Bank annual meetings here this week, the fund says the world economy will grow 3.1 percent this year, down from a July forecast of 3.3 percent and from 3.4 percent growth last year.

"The risks seem more tilted to the downside than they did just a few months ago," IMF chief economist Maurice Obstfeld told reporters.

Still, Obstfeld downplayed the risk of a global recession.

The Federal Reserve last month cited economic weakness around the world -- and especially in China -- when it decided to postpone a long-anticipated increase in short-term U.S. interest rates, which it's kept near zero since December 2008. Obstfeld said any rate increase in the United States would be good news, reflecting the Fed's vote of confidence in the American economy, the world's largest.

The fund predicts the United States will grow 2.6 percent this year, up from a July forecast of 2.5 percent and from 2.4 percent growth last year.

Emerging market economies will likely grow 4 percent, which would mark the fifth straight annual drop. They have been hurt by an economic slowdown in China, which has reduced demand for emerging market raw materials and pushed down prices of commodities such as copper and oil.

"What happens in China has repercussions for the entire world economy," Obstfeld said.

Among those hardest hit by the commodities bust: The Brazilian economy, forecast to contract by 3 percent this year; and Russia, forecast to shrink 3.8 percent because of lower oil prices and economic sanctions imposed by the West as punishment for Russian aggression in Ukraine.

Collapsing energy prices are also hurting Canada. The IMF downgraded its forecast for the Canadian economy by half a percentage point to 1.5 percent this year.

The Chinese economy has been slowing for four straight years, partly because the government is engineering a transition away from dependence on exports and often-inefficient investments. Instead, they are moving toward slower, more sustainable growth based on consumer spending. The IMF expects Chinese economic growth to drop to a 25-year low 6.8 percent this year, but that is unchanged from its July forecast.

Chinese manufacturers are struggling, but "services seem to be booming," Obstfeld said.

The IMF foresees continued improvement in Europe. It kept its forecast for 1.5 percent growth this year in the 19 countries that share the euro currency.

The Japanese economy is expected to grow 0.6 percent this year, down from the IMF's July forecast of 0.8 percent but an improvement from last year when it shrank 0.1 percent.

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Paul Wiseman reported from Washington

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This story has been corrected to show that the IMF's World Economic Outlook was released Tuesday, not Monday.