IMF Slashes Overall 2014 Global Forecast; Russia’s Implications with Malaysia Airlines MH17 Could Bring Economy to Recession

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By Esther Tanquintic-Misa | July 25, 2014 3:59 PM EST

Rising tensions in the Middle East and Ukraine are sure to impact an already plummeting global economy reeling from slowdowns in the U.S. and China. On Thursday, the International Monetary Fund said projected global growth for 2014 has been lowered to 3.4 per cent, from the previous estimate of 3.7 per cent in April.

REUTERS/Gary Cameron
International Monetary Fund (IMF) Managing Director Christine Lagarde delivers opening remarks at the inaugural Michel Camdessus Central Banking Lecture in Washington July 2, 2014. REUTERS/Gary Cameron (UNITED STATES - Tags: POLITICS BUSINESS)

The downgraded 2014 growth outlook, the IMF said in an update of its semiannual World Economic Outlook (WEO), reflects a "weak first quarter, particularly in the United States, and a less optimistic outlook for several emerging markets."

"Geopolitical risks have risen relative to April: risks of an oil price spike are higher due to recent developments in the Middle East while those related to Ukraine are still present."

As for the U.S. and Canada, it expects the two countries to grow 1.7 per cent and 2.2 per cent, respectively, in 2014. Both received downgraded rates.

"In China, domestic demand moderated more than expected," it said.

Olivier Blanchard, the IMF's chief economist, said the world's economy continues to recover, "but it remains a weak recovery, indeed a bit weaker than we forecast in April."

The combined reduced demand from China and delay in the U.S. economy earlier this year were both major factors that contributed to the slashed global growth, the IMF said.

"Some of the demand weakness in the first quarter appears to be more persistent, especially in investment globally, and is expected to result in lower global growth in 2014," it said.

But Blanchard believed the U.S. economy's recent weakness will reverse. "Looking forward, growth in the U.S. is reasonably strong," he said.

Still, he noted that whatever positive gains that could be posted by the U.S. in the rest of the year will not be enough to offset the first-quarter drag.

IMF likewise noted slashing the economic growth forecast of Russia by 1.1 percentage point to 0.2 per cent in 2014, owing to the economic sanctions the US and European Union listed for its role in the separatist fighting with Ukraine.

This scenario, the IMF said, will likely see its economy brought to the brink of recession this year.

"Activity in Russia decelerated sharply as geopolitical tensions further weakened demand."

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(Photo: REUTERS/Gary Cameron / )
International Monetary Fund (IMF) Managing Director Christine Lagarde delivers opening remarks at the inaugural Michel Camdessus Central Banking Lecture in Washington July 2, 2014. REUTERS/Gary Cameron (UNITED STATES - Tags: POLITICS BUSINESS)
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