WASHINGTON – The International Monetary Fund on Wednesday cut its global economic growth forecasts and warned that the United States would harm the world economy if it fails to raise its borrowing limit.
The international lending agency said the global economy will grow by 2.9 percent this year and by 3.6 percent in 2014. Both are 0.2 percentage point lower than the group’s July forecasts. The main reason for the downgrade was slower growth in China, India, Brazil and other developing countries.
But the IMF also lowered its outlook for U.S. economic growth this year to 1.6 percent and next year to 2.6 percent. Those are 0.1 percentage point and 0.2 percentage point lower than in July, respectively.
The fund’s forecasts assume that the U.S. partial shutdown of the federal government would last only a short period. But it warned that failure to raise the government’s borrowing limit later this month could lead to a default on U.S. debt. That would push up interest rates, disrupt global financial markets and possibly push the U.S economy back into recession.
“Failure to lift the debt ceiling would be a major event,” Olivier Blanchard, the IMF’s chief economist, said at a news conference.
U.S. Treasury officials say the government would quickly run out of cash and could default on its obligations if Congress doesn’t approve an increase in the borrowing limit by Oct. 17. U.S. Treasury bonds are a key part of the international financial system, and a default would have global repercussions. For that reason, many analysts expect that the borrowing limit will probably be increased on time.
The IMF’s projections for the U.S. 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, won’t be nearly as much of a drag.
The United States is benefiting from steady consumer and business spending, the IMF said, plus a housing rebound, rising stock prices, and banks’ greater willingness to lend.
“Unless there are fiscal accidents, the recovery should continue,” Blanchard said.