IMF lowers global economic growth forecasts

For emerging economies, the IMF forecasts 5 percent growth as whole, a downward revision of 0.3 percent. The weakening is most pronounced in Brazil, India, China and Russia, which economists refer to as the BRICs. 

“The BRICs are beginning to run into speed bumps,” Blanchard said. 

Growth in China is forecast to be 7.8 percent, a downward revision of 0.3 percent. The forecast for India was trimmed by 0.2 percent, while Brazil’s was cut 0.5 percent and Russia’s was trimmed 0.9 percent.

The IMF sees the recession in the Eurozone reaching -0.6 percent growth this year before growth turns positive in 2014. The European recession is seen as hurting emerging market exports in the forecast model. 

“The old risks are still very much present, the main one being Europe, and things that can go wrong there,” Blanchard said.  

The IMF sees three new risks to the global economy: whether China can effectively balance its credit markets, whether Japanese Prime Minister Shinzo Abe can effectively balance stimulus and a medium term fiscal plan, and how Wall Street investors handle the Federal Reserve’s eventual exit from its monetary easing policies. 

Blanchard said the IMF expects market volatility to decrease after a minor June panic over Fed statements, but “one cannot out rule out further attacks of nerves.”

He urged the U.S. to replace near-term austerity with a medium-term budget control plan.