IMF cuts growth forecast for emerging world

IMF forecasts 2.6% growth in US next year

The International Monetary Fund (IMF) sliced its growth expectations for emerging countries on Tuesday, but maintained its forecast for advanced economies.

(Read more: Emerging markets thrive amid US shutdown)

In its latest world outlook report, the IMF predicted emerging countries would average growth of 4.5 percent year-on-year in 2013, down from an estimate of 5.0 percent growth three months earlier. It also cut its outlook for emerging world growth in 2014, to 5.1 percent.

A traffic jam in New Delhi, India.
Sunil Saxena | Hindustan Times | Getty Images

Meanwhile, the international body held its growth estimate for developed countries — including the euro area, the U.S., the U.K., Japan and Canada — at 1.2 percent in 2013 and 2.0 percent in 2014.

"Real GDP (gross domestic product) growth has disappointed in the emerging market and developing economies, while it has been broadly in line with projections in advanced economies. The reasons for the weaker growth differ across emerging market and developing economies and may include tightening capacity constraints, stabilizing or falling commodity prices, less policy support and slowing credit after a period of rapid financial deepening," the IMF said in the report.

(Read more: Emerging markets may become new force in euro rally)

IMF forecast: can it be trusted?

The BRIC countries — the acronym coined in 2001 for the then-fast-growing economies of Brazil, Russia, India and China — were among those which suffered the largest growth downgrades by the IMF. It cut its 2013 outlook for each of Russia, India and China, and its 2014 forecast for all four BRIC nations.

India in particular suffered steep downgrades to its outlook for both 2013 and 2014, and is now projected to grow by 3.8 percent this year and 5.1 percent next.

"During the first half of 2013, growth in Asia generally moderated and was weaker than anticipated in the April 2013 World Economic Outlook. This was due to a more rapid slowdown in the pace of growth in China, which affected industrial activity in much of emerging Asia, including through supply-chain links, while India faced persistent supply-side constraints," the report said.


Also on Tuesday, the OECD (Organisation for Economic Co-operation and Development) warned that middle-income Asian countries, such as China, India, Indonesia and Malaysia must implement structural reforms over the medium term to achieve their growth potential.

"While emerging Asia has made remarkable economic progress over the past four decades, some of the middle-income developing economies face difficult challenges to sustain their long-term growth and move beyond the middle-income trap… To grow beyond the middle-income trap, these emerging Asia countries need to shift away from growth that is driven primarily by factor accumulation. They should rather embrace growth based on productivity increases driven by improvements in the quality of human capital and innovation," said Mario Pezzini, director of the OECD development center.

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—By CNBC's Katy Barnato