Citing strong US dollar, IMF cuts US economic forecast for 2015, upgrades Europe and Japan

WASHINGTON – The International Monetary Fund, citing the consequences of a strong dollar, is downgrading its outlook for the U.S. economy but raising its forecast for Europe and Japan.

The IMF predicted Tuesday that the American economy will grow 3.1 per cent this year and next — a performance the fund characterized as “robust.” But the U.S. outlook was down from the IMF’s January forecast of 3.6 per cent growth in 2015 and 3.3 per cent growth in 2016. The American economy advanced 2.4 per cent last year.

The IMF forecast that the 19 European countries that use the euro currency collectively will expand 1.5 per cent in 2015 and 1.6 per cent in 2016, up from a January forecast of 1.2 per cent growth this year and 1.4 per cent next. The eurozone grew just 0.9 per cent last year.

The fund expects Japan to grow 1 per cent this year and 1.2 per cent next year, versus an earlier forecast of 0.6 per cent this year and 0.8 per cent in 2016. The Japanese economy shrank 0.1 per cent in 2014.

The IMF expects the world economy to grow 3.5 per cent in 2015, barely up from 3.4 per cent last year and unchanged for its January forecast. It raised the outlook for global economic growth in 2016 to 3.8 per cent, up from a January forecast of 3.7 per cent.

The international lending agency also left unchanged its prediction that the Chinese economy will grow 6.8 per cent this year and 6.3 per cent in 2016. That marks a sharp deceleration from last year’s 7.4 per cent expansion, already the slowest for China in two decades. But Gian Maria Milesi-Ferretti, the IMF’s deputy director for research, told reporters the slowdown in China reflects the country’s transition from growth built on often-wasteful investment in factories and real estate to slower but steadier growth built on spending by Chinese consumers. “We think it is a good slowdown for China,” he said.

Most of the world’s economies are benefiting from sharply lower oil prices. The price of a barrel of oil has plunged to less than $52 a barrel, half what it was a year ago.

Since June 30, the U.S. dollar has climbed 29 per cent against the euro and 19 per cent against the Japanese yen. A strong dollar makes U.S. products more expensive, giving European and Japanese exporters a price advantage.

Moreover, the Federal Reserve is expected to raise short-term U.S. interest rates this year after keeping them near zero for more than six years. The European Central Bank and the Bank of Japan are moving the opposite direction, pursuing easy money policies meant to stimulate economic growth.

The IMF warned that the U.S. faces long-term challenges, arising from low population growth and unimpressive productivity gains.