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IMF sees modest 2013 improvement for world economy

By Desmond Butler

Associated Press

Published: Wednesday, Jan. 23 2013 9:05 p.m. MST

WASHINGTON — The International Monetary Fund is projecting a modest rise in global economic growth for 2013, but also warning that problems in the eurozone and the United States could derail momentum.

The report Wednesday, an update of the fund's World Economic Outlook, largely tracked the initial estimate from October, revising global growth down slightly by one-tenth of a percentage point, to 3.5 percent. The world economy grew 3.2 percent in 2012, according to IMF estimates.

"Some cautious optimism may indeed be justified," said the IMF's chief economist, Olivier Blanchard. "But we should be under no illusions: there remain considerable challenges ahead."

The IMF downgraded its forecast for the 17-country eurozone, projecting a slight economic contraction for 2013. It said that despite positive policy steps to tackle the debt crisis in some eurozone countries, continued uncertainty about a resolution to the crisis is weighing down growth prospects.

The IMF warned that the eurozone "continues to pose a large downside risk to the global outlook."

The revised report was more optimistic about the U.S. economy, forecast to grow by 2 percent for 2013. But prospects could change depending on impending tax and spending decisions. The U.S. government faces a series of budget negotiations as it tries to navigate mandated spending cuts and a dispute between President Barack Obama and lawmakers over the country's borrowing authority.

The IMF warned that the U.S. should avoid sharp cuts in the short term, but improve its books over the medium term by cutting entitlements and passing tax changes.

The IMF also noted that growth in developing economies could be hurt by the problems still facing the U.S., Europe and Japan.

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