Why the world economy continues to sputter
IT'S become a dreary ritual. Every six months, the International Monetary Fund (IMF) forecasts the global economy - and cuts its previous forecast. Despite an army of economists, all of its forecasts since 2011 have been too optimistic. The latest, released last week, shaved 0.4 percentage point
off the growth estimate made in April. The world economy is now expected to expand only 3.3 per cent in 2014, down from a respectable 5.4 per cent in 2010. The feeble growth raises the spectre of a global recession.
IMF managing director Christine Lagarde - her agency makes loans to financially troubled countries - calls the outlook "the new mediocre". Maybe worse. In August, manufacturing output fell in China, Japan, South Korea and much of Europe, report economists at JPMorgan Chase. A 4.3 per cent month-to-month drop in Germany was especially ominous. Despite problems, the United States is "the sole major economy still showing signs of strength", says Cornell University economist Eswar Prasad. But the American recovery could founder on weakness abroad, via lower US exports and foreign profits. About 30 per cent of US profits are earned overseas.
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