World economy loses momentum, IMF to say

Global growth is slowing, with the MENA region in need of support from the World Bank and the IMF, the world's finance ministers will say in a statement.

The global economy is slowing down, with the Middle East and North Africa region in urgent need of short-term and medium-term assistance from the World Bank and the IMF, finance and development ministers from around the world will say in a release on Saturday.

“The global economy remains on a cautious watch and is subject to considerable downside risks that could dent global growth and confidence,” the report from the joint IMF-World Bank Development Committee will say, Reuters reported yesterday.

The IMF has previously named Egypt, Jordan, Libya, Morocco, Tunisia and Yemen as countries in need of “reforms and external financing”. The Economist Intelligence Unit predicts that the Libyan economy will shrink by 5.2 per cent this year, while Morocco and Tunisia are both running sizeable fiscal deficits.

“The path to economic growth, job creation and shared prosperity will require a sustained multilateral effort to protect the poorest and most vulnerable,” a draft release obtained by Reuters said.

The report will be published amid a worsening outlook for a number of the world’s major economies.

Europe risks a prolonged period of Japan-style deflation, despite more aggressive central bank interventions planned for the coming months.

China’s growth is slowing as corporate demand for credit slackens. September purchasing managers indexes showed reduced optimism in the services and non-manufacturing sector.

Emerging markets are faced with significant currency depreciations, which could harm living standards as import prices rise.

The carry trade has caused vast capital inflows to emerging markets spurred by high interest rate differentials and cheap money. But this is likely to end as interest rates rise in the United States, hurting investments, government revenues and equities in emerging markets.

Emerging markets have cut growth forecasts for next year from just below 6.5 per cent to slightly above 5.5 per cent, according to the IMF.

Christine Lagarde, the IMF’s managing director, warned last week that the global economy could settle into a “new mediocre” of prolonged low growth rates.

“Overall, the global economy is weaker than we had envisaged even six months ago,” Ms Lagarde said last week, describing the global economy recovery as “brittle, uneven, and beset by risks”.

“Only a modest pick-up is foreseen for 2015, as the outlook for potential growth has been pared down,” she said.

This marks a change of direction for the IMF, which in January published a report on the world economy that asked “Is the tide rising?”

The IMF, which predicted growth of 3.4 per cent this year and 4 per cent next year, is expected to cut its 2014 outlook at its annual meeting in the US this weekend.

The Organization for Economic Coordination and Development, a group of mostly rich countries, cut its growth forecast for this year to 0.8 per cent from 1.1 per cent.

Ms Lagarde last week described the Ebola epidemic, which has affected Sierra Leone, Guinea and Liberia, as a “significant risk” to the world economy.

The draft communique praised the World Bank for its response to the Ebola outbreak that has killed more than 3,400 people in West Africa and called for quick and coordinated support to mitigate its impact.

* with Reuters