IMF slashes and burns growth

A nice summary today of the IMF’s overnight release of the World Economic Outlook from Tim Colebatch:

”Reassessment of US sovereign risk could reduce global output by several percentage points of GDP,” the IMF says. On its new forecasts released on Tuesday night, that would wipe out global growth.

The forecasts assume that Washington’s warring parties will reach a deal to keep funding the US budget and raise the debt ceiling by the deadline of October 17, and that the stalemate between the White House and Congress will have no lasting impact. Even on that assumption, the IMF has yet again cut its forecasts for global growth in 2013 and 2014, this time mainly because of slowing growth in India, Russia and China, but also shaving its forecasts of growth in the US.

It now expects the world economy will grow by just 2.9 per cent in 2013, then pick up to 3.6 per cent in 2014. In July it had forecast growth to be 3.2 and 3.8 per cent respectively.

Australia’s growth outlook has been downgraded by half a percentage point in each year since its April forecasts, to 2.5 per cent in 2013 and 2.8 per cent in 2014. That is roughly in line with Treasury and Reserve Bank forecasts.

But the IMF warns that the cut in China’s projected growth rate from its historical average of 10 per cent to its new target of 7.5 per cent would slow Australia’s future growth more than that of any other trading partner, except Mongolia.

By 2025, it estimates, Australia’s GDP will be 3 per cent less than it would have had China remained on its old growth path. That implies a reduction of about 0.25 percentage points a year in our baseline growth.

To give you an idea of how behind the curve the old girl has been, here is a chart of its China forecasts over time:

More forecast busting charts here and the full IMF document here.