IMF cuts world growth forecast

AAP

The International Monetary Fund (IMF) has slashed its 2014 growth forecast for China, Australia's number one trading partner.

Updating its April World Economic Outlook on Tuesday, the IMF downgraded its world growth forecast for this year and next, driven to a large extent by "appreciably weaker" domestic demand and slower growth in several key emerging market economies.

The euro area is also expected to suffer a more protracted recession than earlier predicted.

The IMF urged policymakers everywhere to increase efforts to ensure robust growth.

"Weaker growth prospects and new risks raise new challenges to global growth and employment, and global rebalancing," the IMF warned.

It cut its world growth forecast for 2013 to 3.1 per cent and to 3.8 per cent for 2014, both 0.2 percentage points lower than it predicted in April.

For China, it now sees 2013 growth at 7.8 per cent, down 0.3 percentage points from previous, and 2014 growth at 7.7 per cent, an even larger 0.6 percentage point downgrade.

Forecasts for advanced economies that includes the G7 countries - US, Germany, France, Italy, Japan, UK and Canada - were also trimmed.

While the Washington-based institution did not provide a separate new forecast for Australia, "other advanced economies" were cut by 0.1 percentage point for both 2013 and 2014 to 2.3 per cent and 3.3 per cent respectively.

"Downside risks to global growth prospects still dominate," the IMF warned.

"While old risks remain, new risks have emerged, including the possibility of a longer growth slowdown in emerging market economies, especially given risks of lower potential growth, slowing credit, and possibly tighter financial conditions."

The latter could result from an anticipated unwinding of monetary policy stimulus in the US.

Federal Treasurer Chris Bowen said the Australian economy was still expected to grow faster than advanced economies as a whole, both this year and next.

In the May budget, the government forecast growth of 2.75 per cent in the 2013/14 financial and three per cent in 2014/15.

Mr Bowen said while the IMF has revised down world growth forecasts, China and India are still forecast to grow at a solid rate in 2013.

India, another key Australian trading partner, was downgraded 0.2 percentage points to 5.6 per cent for 2013 and by 0.1 percentage point to 6.3 per cent for 2014.

"Australia is not immune from global economic and financial uncertainty," Mr Bowen said in a statement.

"This underlines the need for responsible settings and policies to help manage the transition underway in our economy, and to support productivity, jobs and growth in the face of ongoing global economic weakness."