The forecast for potential growth in emerging market economies is 1.5 percent lower than it was in 2011. Source: Shutterstock
The world economy is in the middle of a balancing act, the International Monetary Fund (IMF) World Economic Outlook (WEO) said in a report released this week.
The overall growth forecast for the 2014 world economy has been adjusted downward to 3.3 percent, which is 0.4 percent less than the WEO report released in April 2014. The 2015 world economy forecast for growth has also been reduced to 3.8 percent.
The forecast for potential growth in emerging market economies is 1.5 percent lower than it was in 2011. The main contributor to the lowering is reduced growth potential, according to the WEO report.
Russia's uncertain prospects for investments had lowered economic growth even before the crisis in Ukraine transpired, which continues to contribute to declining growth prospects. The report projects Russia to grow at just 0.2 percent in 2014.
Geopolitical pressures in Russia and the Commonwealth of Independent States (CIS) have hindered foreign investment opportunities, diminished domestic production, and lowered confidence levels.
Effective policies and an uptick in confidence levels have led to a recovery for India after its relative decline. India's growth rate is expected to be around 5.6 percent for this year and 6.4 percent in 2015.
Potential growth in Brazil has also been affected by uncertain prospects and depressed investments. However, China is currently experiencing elevated growth, but in the future a reduction in growth levels will be seen as beneficial.
Downside risks to the emerging market sector include indifference in the future, geopolitical threats becoming more pronounced, and the possibility that economic improvements in the euro zone could come to a standstill.
According to the WEO report, "the effects of the Ukraine crisis have not spread beyond the affected countries and their immediate neighbours. And the turmoil in the Middle East has not had much effect on the level or volatility of energy prices. But clearly, this could change in the future, with major implications for the world economy."
Growth in the euro zone almost came to a standstill earlier this year, partially due to the crisis inherited from the south and partially due to low prospective growth nearly everywhere in the euro zone.
The United States and the United Kingdom are moving on from the global economic crisis with moderate growth, and Japan also has a growing economy. The potential, however, for growth in the US and UK is lower than it has been since the early 2000s, and Japan's high public debt will produce "major macroeconomic and fiscal challenges" according to the WEO report.
First published by RIA Novosti.
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