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IMF downgrades global growth forecast

The International Monetary Fund (IMF) has lowered its forecast for global economic growth for this year and next, the media report Tuesday.

The IMF now expects growth of 3.5% this year, compared with the previous estimate of 3.8% which it made in October. The growth forecast for 2016 has also been cut, to 3.7%.

The downgrade to the forecasts comes despite one major boost for the global economy - the sharp fall in oil prices, which is positive for most countries. The IMF expects that to be more than offset by negative factors, notably weaker investment.

That in turn reflects diminished expectations about the growth prospects for many developed and emerging economies over the next few years. If business expects weaker growth, there is less opportunity to sell goods and services and so less incentive to invest.

“The price of oil is a shot in the arm,” IMF Chief Economist Olivier Blanchard said in an interview. “But there is clearly a state of weakness in the world economy and this shot is not enough.”

The emergency lender raised its outlook for the U.S. economy this year by half a percentage point to 3.6% as falling fuel prices at the pump helped juice the American recovery.

But tumbling crude costs failed to fend off stubborn economic anemia in the eurozone and Japan, two of the world’s largest economies at risk of returning into recession. The IMF cut its 2015 growth expectations for the currency union by 0.2 percentage point to 1.2% and chipped off the same amount for Japan’s forecast, putting growth in the world’s No. 3 economy at 0.6% for the year.

The IMF also chopped 0.3 percentage point off China’s forecast despite cheaper energy costs as Beijing sacrifices output to build up buffers against financial turmoil in its real-estate market. The fund’s forecast for China’s 2015 growth rate of 6.8% would be the slowest year-over-year expansion since 1990 and is below the 7% growth target that many economists expect Beijing to set for this year. Next year, growth in China is expected to decline a half-percentage point to 6.3%.

China’s housing-market problems are more serious than the fund originally expected. Mr. Blanchard said any benefits China might have accrued from less-expensive oil will be offset as the government toughens its regulation of the nonbank financial sector and cuts public investment.

The fund shaved more than a half-percentage point off its forecast for emerging market economies, noting a 3% contraction in Russia’s economy as oil prices and Western sanctions bite into the crude exporter, and slower expected output in Brazil, South Africa and other major industrializing countries.

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