IMF raises global economic forecast as constraints on growth gradually ease

The International Monetary Fund (IMF) on Tuesday slightly raised its growth forecast for the world economy to 3.7 percent in 2014, 0.1 percentage point higher than its October projection. "Global activity strengthened during the second half of 2013," the IMF said in an update of its World Economic Outlook report. "Activity is expected to improve further in 2014-15, largely on account of recovery in the advanced economies." Growth in advanced economies was expected to be 2.2 percent in 2014, up from 1.3 percent in 2013. It was 0.2 percentage point higher than the growth rate projected in October. "The euro area is turning the corner from recession to recovery," noted the flagship report of the IMF. Growth was projected to strengthen to 1 percent in 2014 and 1.4 percent in 2015, but the recovery would be uneven. The U.S. economic growth was predicted to accelerate from 1.9 percent in 2013 to 2.8 percent in 2014. The pickup in 2014 would be carried by final domestic demand, supported in part by a reduction in the fiscal drag as a result of the recent budget agreement. In Japan, growth was expected to slow more gradually compared with the October estimate as temporary fiscal stimulus should partly offset the drag from the consumption tax increase in early 2014. Its annual growth was expected to remain broadly unchanged at 1.7 percent in 2014, before moderating to 1 percent in 2015. Growth in emerging-market and developing economies was projected to accelerate from 4.7 percent in 2013 to 5.1 percent in 2014. China's growth rate was expected to slow down slightly from 7.7 percent in 2013 to 7.5 percent in 2014. "In many emerging-market and developing economies, stronger external demand from advanced economies will lift growth, although domestic weaknesses remain a concern," said the report. "Growth in China rebounded strongly in the second half of 2013, due largely to an acceleration in investment. This surge is expected to be temporary, in part because of policy measures aimed at slowing credit growth and raising the cost of capital," according to the report. The Washington-based global lender also kept its forecast for the world economic growth in 2015 unchanged at 3.9 percent. On risks, the IMF said risks of low inflation in advanced economies, especially the euro area, have come to the fore. In emerging economies, increased financial market and capital flow volatility remain a concern, given that the U.S. Federal Reserve would start tapering its massive bond purchases in 2014. "Ensuring robust growth and managing vulnerabilities remain global priorities despite the expected strengthening of activity," the IMF suggested..