WASHINGTON – The International Monetary Fund Tuesday trimmed projections for global economic growth for this year and next to take into account sharp government spending cuts in the United States and the latest struggles of recession-stricken Europe. While it said economic prospects had improved in recent months with a fading of financial risks, it warned Europe against relaxing efforts to combat its debt crisis given the messy bailout in Cyprus and a political stalemate in Italy. The IMF raised its forecast for Japan, welcoming the Bank of Japan's aggressive new monetary stimulus, which it said would boost growth and help vanquish deflation. "While some tail risks have decreased it is not time for policymakers to relax," IMF chief economist Olivier Blanchard told a news conference to discuss the World Economic Outlook. The report was released as global financial leaders gathered for the semiannual meetings of the IMF and World Bank later this week. The IMF cut its 2013 forecast for global growth to 3.3 percent, down from its January projection of 3.5 percent. It also trimmed its 2014 forecast to 4.0 percent from 4.1 percent. A more subdued outlook for the US and for the eurozone led it to lower its growth forecast for advanced economies to 1.2 percent for 2013 while it kept its 2014 forecast at 2.2 percent. While it lowered its projections for growth in emerging economies to 5.3 percent for this year, it also said growth was already accelerating and would hit 5.7 percent in 2014. Growth has returned to a healthy pace in China and activity is expected to recover in Brazil next year, the IMF said. Blanchard said the dramatic overhaul of monetary policy announced by the Bank of Japan was a necessary step and he hoped it would succeed. The IMF said inflation in Japan would likely rise above zero in 2013 and temporarily jump in 2014 and 2015 in response to an increase in consumption taxes. The Bank of Japan unleashed an intense burst of monetary stimulus earlier this month, pledging to inject about $1.4 trillion into the economy in less than two years, a major shift from its previous incremental steps. Tokyo came under fire before a meeting of officials from the Group of 20 leading economies in February for comments that suggested it was targeting specific levels for the yen with its easing of monetary and fiscal policy. The yen last week hit a four-year low against the dollar. But the IMF said it found "no large deviations of the major currencies from medium-term fundamentals" and dismissed talk of a "currency war" as overblown. "We think it is a logical consequence of appropriate monetary policy," Blanchard said when asked about the yen's sharp decline. The Fund said the U.S. dollar and euro "appear moderately overvalued" and the Chinese renminbi "moderately undervalued." Evidence on the value of the yen "is mixed," it added. – Reuters
