The International Monetary Fund Tuesday cut its global growth outlook for this year and next, saying the prospect of the U.S. Federal Reserve unwinding its easy-money policies is aggravating a slowdown in emerging markets.
The IMF's souring emerging-market forecast comes on top of a deepening euro-zone contraction and a downward revision of U.S. growth as federal-budget cuts bite longer than the fund originally forecast.
The IMF cut its growth forecast for this year and next by 0.2 percentage point from its last assessment in April. It now expects 2013 growth at 3.1% and 2014 output at 3.8%....
The Fed sparked a torrent of capital-flow reversals last month as officials outlined a possible exit plan from the bank's cheap cash policies. The prospect of higher interest rates caused investors to restructure their portfolios, stoking volatility in currency, bond and equity markets around the globe.
The IMF hopes those market gyrations will cool. "They largely reflect a one-time repricing of risk due to the changing growth outlook for emerging market economies and temporary uncertainty about the exit from monetary policy stimulus in the U.S.," the fund said.
But it cautioned that underlying vulnerabilities in emerging markets could lead to more portfolio shifts, particularly if interest rates continue to rise. "The results could be sustained capital-flow reversals and lower growth in emerging markets."