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IMF cuts global growth forecasts

The International Monetary Fund has cut its global economic growth forecasts for this year and next, mostly because of slower expansion in India, China, Brazil and other developing nations.

The international lending agency said that the global economy will grow 2.9% this year and 3.6% in 2014. Both are 0.2 percentage points lower than the group's July forecasts.

The IMF also lowered its outlook for US economic growth this year to 1.6% and next year to 2.6%. Those are 0.1 percentage point and 0.2 percentage points lower than in July, respectively.

The fund's forecasts assume the US government would partially shut down but for only a short period. It warned that failure to raise the US government's borrowing limit "could seriously damage the global economy".

If Congress does not approve an increase in the borrowing limit by October 17, the treasury department says it would soon run out of cash and could default on its obligations. US Treasurys are a key part of the international financial system. A default would have global repercussions. For that reason, many analysts expect the borrowing limit will probably be increased on time.

The IMF's projections for the US economy are slightly below many private sector forecasts. The group expects growth to increase next year because government spending cuts and tax increases, which took effect earlier this year, will not drag nearly as much.

Olivier Blanchard, the IMF's chief economist, says the US is benefiting from steady consumer and business spending, fuelled by a housing rebound, rising stock prices and a greater willingness by banks to lend.

"Unless there are fiscal accidents, the recovery should continue," Mr Blanchard said.

Europe's economy is also benefiting as government spending cuts and tax increases ease. The IMF forecasts the 17 nations that use the euro currency will expand 1% in 2014, after shrinking 0.4% this year. Those estimates are mostly unchanged from July.

Many developing countries, particularly India, have been hurt by expectations that the Federal Reserve will soon slow its 85 billion dollars-a-month (£52 billion) in bond purchases. That has caused investors to pull money from India, Brazil and other emerging markets as yields on US assets picked up.

India's central bank has raised interest rates in an effort to stem the flow, a move that has also slowed growth.

The IMF called on the Fed to clearly communicate its plans as it moves towards scaling back the bond purchases.

AP

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