The International Monetary Fund (IMF) has downgraded growth prospects for the UK and the Irish Republic.
The UK is now expected by the IMF to grow by 1.75% this year, down from last year’s prediction of 2.1%.
Factors causing the reduced growth expectations include commodity price inflation and the impact of the Government’s austerity programme. But the IMF supports the fiscal approach of the Government, which it describes as “appropriate”, given the size of the fiscal deficit.
The IMF was also supportive of the fiscal approach being taken by the new Irish government. It said that with the deficit moving under control, the prospects this year were for growth to now resume, after economic contraction of 1% last year. But it said this year’s growth was likely to be slower than forecast. The IMF believes Ireland will now benefit from an export-led economic improvement, supported by enhanced competitiveness.
The prospects for the world’s economy is also improving, said the IMF. It expects fiscal tightening in the US and Japan to lead to reduced deficits in both countries, despite the reconstruction cost to Japan following the massive earthquake damage. Global GDP is predicted by the IMF to grow by 4.4% this year. The IMF expects economic output in China to grow by nearly 10%.