The International Monetary Fund cut its global outlook for this year and next, warning that a U.S. government default could seriously damage the world economy, Bloomberg News reported.
The IMF said in its World Economic Outlook, growth worldwide will be 2.9% this year and 3.6% from a previously estimated 3.1% and 3.8% respectively.
The forecast factors in a short federal government shutdown and an agreement on the debt-limit before an Oct. 17 deadline, but the IMF warned a default could harm the global economy, Bloomberg reported.
“The effects of any failure to repay the debt would be felt right away, leading to potentially major disruptions in financial markets, both in the U.S. and abroad,” IMF Chief Economist Olivier Blanchard told Bloomberg.
“We see this as a tail risk, with low probability. But were it to happen, it would have major consequences,” he said.
The IMF expects growth in emerging economies to increase 4.5% this year, 0.5% less than it forecast three months ago.
“Advanced economies are gradually strengthening” while “growth in emerging-market economies has slowed,” Blanchard wrote in the report.
“This confluence is leading to tensions, with emerging-market economies facing the dual challenges of slowing growth and tighter global financial conditions,” he wrote.
