IMF Reduces Growth Estimates

First it was the World Bank coming out with bad news regarding economic growth; now it's the International Monetary Fund delivering the same verdict: The recovery's not going quite as well as planned.

The IMF's World Economic Outlook released Tuesday predicts global economic growth of 3.3% for this year, down from an earlier estimate of 3.5%, and increasing only slightly to 3.6% growth in 2013. In comparison, global output increased 5.1% in 2010 and 3.8% in 2011.

Outlooks for advanced economies painted an even bleaker picture. As a whole, the IMF projected advanced economies would grow 1.3% in 2012 and 1.5% in 2013. Both numbers are lower than the figures for 2011 and far lower than the 3% growth seen in 2010. The United States actually performed far better in projections than many of its competitors, with estimates of 2.2% and 2.1% growth over 2012 and 2013, respectively. The IMF projected tightening fiscal policy and poor investor confidence would continue to restrict American growth. The really bad news came for Europe, as the eurozone's leading nations all drew growth projections below 1%, with the IMF predicting economic contraction for Spain and Italy for 2012 and 2013.

The IMF forecasted better numbers for emerging economies, but projections still fall far below 2010 numbers. China, which led all regions in growth estimates (7.8% in 2012 and 8.2% in 2013), still is set to clock in below growth in previous years as the nation struggles with its own economic slowdown. Fellow BRIC members Brazil and India have growth estimates for 2013 falling more than three percentage points below 2010 levels. The IMF maintained a bullish sentiment for Brazil, however, stating that the nation's fiscal measures and monetary easing would sustain healthy expansion. Russia, the final member of BRIC, is predicted to see 3.7% growth this year, according to the IMF, down from 2010's 4.3%.

The Dow Jones Industrial Average (INDEX: ^DJI  ) and S&P 500 (INDEX: ^GSPC  ) retreated on the news, with each falling more than half a percent. The IMF's report also sent the CBOE Volatility Index (INDEX: ^VIX  ) , or VIX, higher as investors continue to deal with a murky picture of the future economy.

Fool contributor Dan Carroll holds no positions in the stocks mentioned in this article. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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