IMF may downgrade outlook for world growth

The chief of the International Monetary Fund predicts that the global economy will improve over the next 18 months but says that growth might not be as fast as previously expected.

IMF Managing Director Christine Lagarde says that investment remains weak and that the recovery in the United States hinges on the ability of the Federal Reserve to gradually reduce stimulus measures and on political leaders agreeing on a fiscal plan.

Lagarde made the comments Sunday at a conference in France. The IMF is expected to refresh its economic forecasts this month. In April, it predicted global growth of 3.6 per cent this year and 3.9 per cent in 2015, up from 3 per cent last year.

Growth was unexpectedly weak earlier this year but should gain momentum in the second half of 2014 and pick up more in 2015, Lagarde said. Still, she said, the recovery in advanced countries remains tepid, and developing countries won't grow as fast as had been expected.

"Global activity is strengthening but could be weaker than we had expected, as potential growth is lower, and investment remains depressed," she said.

In the United States, the U.S. Labor Department reported Thursday that employers added 288,000 jobs in June, lowering the unemployment rate to 6.1 per cent, the lowest since 2008. It was the fifth straight monthly gain of at least 200,000 jobs, the best run since the late 1990s.

The recent hiring numbers contrasted with a weak first quarter in which the U.S. economy shrank 2.9 per cent, the sharpest decline since the worst of the recession. And wages are still lagging inflation for most American workers.

Major economies in Europe and Asia are continuing to struggle. Risks to the recovery include inflation that is too low in Europe, high debt levels in many countries and geopolitical threats, including in Ukraine and the Middle East, Lagarde said.