Washington: The global economy should grow significantly this year, even though its biggest player, the US, is expected to experience its weakest growth in five years, according to a new International Monetary Fund (IMF) forecast. “By and large things look very good,” said Simon Johnson, the fund’s top economist.
According to its latest World Economic Outlook released Wednesday, IMF expects the world economy to grow by 4.9% this year and next. While that would be a moderation from last year’s 5.4%, it would still represent a remarkably healthy showing, analysts say.
The US economy is expected to grow by 2.2% this year, which would be the slowest since 2002, when it was recovering from a recession. Last year, it grew by 3.3%, a two-year high even as it coped with a painful housing slump.
World economic growth is expected to remain solid even with much slower activity in the US as other countries pick up the slack. Another global powerhouse, China, is expected to log a growth of 10% this year and 9.5% next year, according to IMF’s forecast. China’s economy grew by 10.7% last year. India, which grew by 9.2% last year, will slow down but still grow by 8.4% this year and 7.8% next.
In its fresh forecast, IMF downgraded its estimate for the US growth this year to the current 2.2%, from 2.9% that had been forecast in September. The reason for the lower projection: The US housing market downturn in the US has been deeper than projected, IMF said. US has been dealing with strain from a housing market that started to crumble last year, after a five-year boom.
Although there have been some “tentative signs of stabilization” in the troubled housing sector, the “housing correction still has a way to run,” IMF said. “A turnaround in residential construction is still several quarters away.”
The US economy should pick up some speed next year, however, and grow by 2.8% as the drag from the housing slump eases, IMF said.
Thus far, the US housing slump has had little impact on economic activity in the rest of the world. “Overall, the baseline view remains that difficulties in the housing sector will not have major spillovers,” IMF said.
In Europe, IMF expects the German economy to grow by 1.8% this year, an improvement from a previous estimate of 1.3% growth. Germany is expected to see growth of 1.9% next year. Britain should see growth of 2.9%this year, also better than IMF previously thought. Russia is expected to see economic activity increase by 6.4%this year, compared with 6.7% last year. Japan expected to post economic growth of 2.3% this year, up from 2.2% last year. Growth should fall back to 1.9% next year.
The Canadian and Mexican economies—the two countries more likely to experience “spillovers” from the US slowdown—should grow by 2.4% and 3.4%, respectively, this year. IMF’s outlook will be discussed during the spring meetings of IMF and the World Bank on Friday.