The International Monetary Fund cut its outlook for global growth in 2015 and warned about the risks of rising geopolitical tensions and a financial-market correction as stocks reach “frothy” levels.
The world economy will grow 3.8 percent next year, compared with a July forecast for 4 percent, after a 3.3 percent expansion this year, the Washington-based IMF said. U.S. growth is helping lead a worldwide acceleration that’s weaker than the fund predicted 2 1/2 months ago as the outlooks for the euro area, Brazil, Russia and Japan deteriorate.
“In advanced economies, the legacies of the precrisis boom and the subsequent crisis, including high private and public debt, still cast a shadow on the recovery,” the IMF said in its latest World Economic Outlook. “Emerging markets are adjusting to rates of economic growth lower than those reached in the precrisis boom and the postcrisis recovery.”
The outlook buttressed the case made by IMF Managing Director Christine Lagarde, who warned last week that officials need to act to prevent a prolonged period of sluggish growth, a trend she called the “New Mediocre.” Raising growth in emerging and advanced economies “must remain a priority,” the IMF report stated.
The Standard & Poor’s 500 Index declined for a second day, falling 0.7 percent to 1,952.03 at 11:47 a.m. in New York. The equity benchmark is about 3 percent lower than a record reached on Sept. 18. The MSCI World Index dropped 0.6 percent to 1,670.23.
According to the report, a sustained period of policy interest rates near zero in advanced economies has raised the risk that some financial markets may be overheating.
“Downside risks related to an equity price correction in 2014 have also risen, consistent with the notion that some valuations could be frothy,” the lender said without naming specific markets.
The U.S. is a bright spot, according to the IMF. The world’s largest economy is predicted to grow 2.2 percent this year, compared with a 1.7 percent projection in July. Next year, the the U.S. is seen expanding 3.1 percent, compared with a 3 percent pace forecast in July.