IMF To Lower Global Forecasts
07/06/2012| 07:05am US/Eastern
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TOKYO--International Monetary Fund head Christine Lagarde said on Friday that the IMF will cut its global growth forecasts in the next month, adding that a weaker global economy will bring more trouble for Japan in the form of a stronger yen.
The world economic outlook will be "tilted to the downside," Ms. Lagarde said at a press conference in Tokyo. "Tilted means there's not an enormous variation, but it's a negative variation," she said, without providing any figures or details of which regions would be affected.
The IMF's world economic outlook is revised quarterly. In the last update in April, the fund predicted global growth of 3.5%% in 2012, revised upwards from a 3.3% forecast in January, and forecast 4.1% growth in 2013, up from 3.9%. The updated report will be released on July 16.
The fund leader expressed concern about the outlook for the global economy as the euro-zone debt crisis rumbles on, and urged more concerted action on the part of U.S. and European leaders.
Fears that the global slowdown may be worsening prompted policy responses from central banks on Thursday, as the ECB cut its key interest rate to a historical low of 0.75% and the People's Bank of China cut a one-year yuan lending rate to 6%. The Bank of England also decided to increase the size of its bond-buying program.
Ms. Lagarde said she didn't know if the moves were coordinated, but said the global action shows that "central banks are facing similar issues."
Markets are looking to U.S. jobs data, set to be released later in the global day, for any signs indicating the U.S. Fed might follow suit with more easing. The Bank of Japan also has an upcoming policy board meeting on July 11-12.
The IMF leader reiterated that the slowdown will affect the Japanese economy through upward pressure on the yen and a slowdown in exports.
Concern about the ongoing euro crisis has increased the attractiveness of safe-haven assets, sending yields on U.S. Treasurys, German Bunds and Japanese government bonds falling, and contributing to the yen's appreciation.
"If there was a further deterioration arising out of the euro zone, it might have an unwelcome currency effect on the yen, which would be used as a safe haven and therefore would become further overvalued," Ms. Lagarde said, reiterating the IMF's stance that the Japanese currency is "moderately overvalued."
She added that Japan would be justified in intervening in currency markets as long as it was done in tandem with other nations.
The IMF chief also met with Prime Minister Yoshihiko Noda, Finance Minister Jun Azumi, and Bank of Japan Gov. Masaaki Shirakawa to discuss Japan's economy, the euro-zone crisis and preparations for the annual IMF and World Bank meetings, set to be held in Tokyo in October.
-Alexander Martin contributed to this article.
Write to Eleanor Warnock at eleanor.warnock@dowjones.com
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