IMF cuts outlook as EU crisis ensnares emerging markets

July 16 (Bloomberg) -- The International Monetary Fund cut its 2013 global growth forecast as Europe’s debt crisis prolongs Spain’s recession and slows expansions in emerging markets from China to India.

Growth worldwide will be 3.9 percent next year, less than the 4.1 percent estimate in April, the fund predicted in an update of its World Economic Outlook. Spain’s economy will contract 0.6 percent instead of a prior forecast for 0.1 percent growth, and India’s projection for next year was reduced 0.7 percentage point to a 6.5 percent expansion, it said.

Central bankers from London to Seoul have lowered borrowing costs or increased bond buying in recent weeks in a round of international stimulus echoing the response to the 2007-08 global financial crisis. The fund said a U.S. rebound is moderating, the outlook is deteriorating for developing economies and global growth could suffer further if European policy makers put off measures agreed at a June summit to arrest the region’s instability.

“In the past three months, the global recovery, which was not strong to start with, has shown signs of further weakness,” the Washington-based IMF said in the report. “Downside risks continue to loom large, importantly reflecting risks of delayed or insufficient policy action.”

2012 Slowdown

For 2012, the global forecast was little changed at 3.5 percent, the IMF said, as the Germany and Japan’s economies expand faster than projected three months ago.

The U.S. will grow 2 percent this year and 2.3 percent in 2013, as forecast July 3. Too much fiscal tightening in the world’s largest economy would pose a risk to global growth, according to the fund, especially if policy makers fail to reach a consensus on extending some temporary tax cuts and reversing automatic spending reductions.

A report from the U.S. Commerce Department today showed retail sales unexpectedly declined for a third straight month in June as limited employment gains took a toll on the biggest part of the economy.

The 0.5 percent drop followed a 0.2 percent decrease in May. The decline exceeded the most pessimistic forecast in a Bloomberg News survey in which the median projection called for a 0.2 percent rise. Purchases last fell for three or more months in July through December 2008.

The Standard & Poor’s 500 Index fell 0.1 percent to 1,355.01 at 11:43 a.m. in New York as gains in technology and financial shares helped make up for an earlier decline of as much as 0.6 percent.

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