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Oranjestad, July 9, 2013 — A marked slowdown in the world’s top emerging economies will see the International Monetary Fund (IMF) cut its global growth forecast this week, signalling a stark reversal of fortune for the growth champions of the past decade.
While the economies of the US, Europe and Japan were hard hit by the recession, China, India, Russia and Brazil stepped forward with breakneck growth rates to take up the slack, and South Africa was quick to align itself with them in the Brics grouping.
IMF MD Christine Lagarde, in an interview on Sunday, said the IMF’s global growth forecast for this year would be scaled back this week — and emerging economies were to blame.
"We had a growth forecast of about 3.3%," Ms Lagarde said, referring to the fund’s forecast for this year.
"But I fear that considering what we are seeing now in emerging countries in particular — not developing countries and low-income countries but emerging countries — I fear that we might be slightly below that," she told an economists’ conference in the southern French city of Aix-en-Provence.
Ms Lagarde said she would not give numbers because the fund would officially publish the data this week.
The IMF had already cut its 2013 forecast for global growth to 3.3%, in April, down from 3.5% in January.
The IMF’s revision raises questions for South Africa’s government and business, which have pinned their hopes on booming growth in the Brics bloc to help make good the damage to South Africa’s exports by the prolonged slowdown in Europe.
The IMF’s latest move follows a recent World Bank Global Economic Prospects report suggesting the growth rates of Brics members have long been overstated. It says the worsening of their inflation and current account balances shows they have been unable to sustain rapid growth without generating price pressures.
The report blames domestic supply bottlenecks — arising from weak or poorly enforced regulations, corruption, inadequate or irregular provision of electricity, or inadequate educational and health investment — for the price pressures.
As the IMF scales back Brics growth, it may similarly have to upgrade other forecasts.
In the UK, where the IMF and the Treasury have been engaged in a war of words over policy, the IMF is likely to lift its growth forecast from 0.7% to as much as 1%. In April, IMF chief economist Olivier Blanchard warned Chancellor of the Exchequer George Osborne he was "playing with fire" and should "consider adjustment to the original fiscal plans".
The IMF had expected the world economy to grow 3.3% this year and 4% in the next one, with corresponding growth of 1.2% and 2.2% in the advanced economies, and 5.3% and 5.7% in emerging economies.
The IMF’s latest World Economic Outlook report, from April, forecast a growth rate of 2.8% for South Africa this year, rising slightly to only 3.3% next year, owing to sluggish mining production and weakened demand from the eurozone, which remains a key export market for the country.