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The Canadian Press - ONLINE EDITION

IMF cuts global growth forecast because of slowdowns in US, Russia and emerging markets

WASHINGTON - The International Monetary Fund foresees the global economy expanding less than it had previously forecast, slowed by weaker growth in the United States, Russia and developing economies.

The lending organization predicted Thursday that global growth will be 3.4 per cent in 2014, below its April forecast of 3.7 per cent. But the fund still expects the growth of the world's economy to accelerate a bit to 4 per cent in 2015.

The downgrade of this year's estimate for the global economy reflects much slower growth in the United States. The IMF now expects just 1.7 per cent U.S. growth in 2014, which would be the weakest since the recession officially ended five years ago. That's down from its April prediction of 2.8 per cent, mostly because of a sharp weather-related contraction in the first quarter. The U.S. economy shrank at an annual rate of 2.9 per cent in the first three months of the year.

But the IMF thinks the U.S. economy rebounded in the April-June quarter at a healthy 3.5 per cent annual rate. Growth should remain above 3 per cent in the second half of the year, it said in a separate report Wednesday. And it should be 3 per cent for all of 2015.

Olivier Blanchard, the IMF's chief economist, said the U.S. economy's recent weakness is in "the past, to a large extent."

"Looking forward, growth in the U.S. is reasonably strong," Blanchard added.

The IMF also slashed its outlook for Russia's growth to just 0.2 per cent this year and 1 per cent in 2015. Russia's conflict with Ukraine has caused a sharp drop in foreign investment.

The IMF included its forecasts in a quarterly update to its World Economic Outlook report.

The weaker growth estimates underscore the need for central banks in advanced economies in the United States and Europe to keep interest rates low, the report said. The Federal Reserve has pegged the short-term rate it controls at nearly zero for more than five years. But most economists expect the Fed to start slowly raising that rate in mid-2015.

The European Central Bank has cut its benchmark rate to 0.15 per cent, a record low. It's also placed a negative rate on the deposits it holds for commercial banks to try to get them to lend more.

The IMF also stressed that much of the downgraded forecast reflects temporary factors, such as harsh winter weather and a slowdown in inventory restocking in the United States. .

In China, consumer spending has declined as the government has sought to reduce lending, the IMF said. Growth in China will likely be 7.4 per cent this year, down from the IMF's 7.6 per cent forecast in April. It will slip further, to 7.1 per cent, in 2015.

But Beijing has taken steps to support growth, such as spending more on roads and other infrastructure and cutting taxes for small businesses, the IMF said. That should bolster the Chinese economy in the second half of this year.

In Brazil, higher rates have throttled business and consumer spending, the IMF said. Brazil's central bank has raised rates to try to combat inflation. The economy will expand just 1.3 per cent this year, the IMF estimates, down from its previous estimate of 1.9 per cent. The IMF also marked down its forecast for Brazil's economy in 2015 to 2 per cent, from 2.6 per cent.

Mexico's economy has been held back by weakness in the United States and slower construction, the IMF said. It foresees growth of just 2.4 per cent this year, down from its April estimate of 3 per cent. But it should rebound in 2015, the IMF expects.

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