IMF cuts global growth forecast

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The International Monetary Fund once again cut its outlook for the global economy, warning Tuesday that economic turmoil in China and financial contagion throughout emerging markets threaten to curb global growth.

Deeper downturns in many of the world’s largest developing countries and a weaker-than-expected expansion in the U.S. prompted the IMF to downgrade its forecast for global growth this year by 0.2 percentage point to 3.4%. That is a meager improvement from last year’s 3.1% growth rate.

“It is going to be a year of great challenges,” IMF chief economist Maurice Obstfeld said as the fund published an update to its World Economic Outlook. “Unless the key transitions in the world economy are successfully navigated, global growth could be derailed.”

The IMF slashed its forecasts for Brazil, where a government corruption scandal is compounding its growth problems. The fund now expects the economy will contract by 3.5% this year, 2.5 percentage points lower than its last forecast. Russia’s economy will shrink by 1% this year, 0.4 percentage point deeper than the IMF’s previous outlook.

Meanwhile, a strong dollar is weighing on U.S. exports, subduing acceleration of the world’s biggest economic engine. The IMF said the American economy should grow by 2.6% this year, up a hair from last year’s 2.5%, but 0.2 percentage point down from its prior forecast.

The eurozone and Japan are adding little to global growth, expanding by 1.7% and 1%, respectively, as they struggle to revive growth amid high debt loads and anemic demand.

The IMF left its forecast for China’s economic growth to cool to 6.3% this year and 6% next year, down from 6.9% in 2015. Those rates are lower than Beijing’s official forecasts, but they presume authorities will juice growth through monetary and fiscal policy and gradually let the air out of an inflated financial sector.

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