The International Monetary Fund (IMF) has slashed its growth forecasts for the global economy, saying that the upturn is expected to be 'more gradual' than previously thought.

In its World Economic Outlook update, the organisation said that while financial conditions improved in the fourth quarter of 2012, "a broad set of indicators for global industrial production and trade suggests that global growth did not strengthen further".

Meanwhile, the 3.0% global economic expansion in the third quarter was partly bolstered by "temporary factors" such as increased inventory accumulation in the US. Third-quarter growth also masked old and new areas of weakness, the IMF said.

"Activity in the euro area periphery was even softer than expected, with some signs of stronger spillovers of that weakness to the euro area core. In Japan, output contracted further in the third quarter."

As such, the IMF has now cut its growth forecasts for world output in 2013 and 2014 by 0.1 percentage point (pp), to 3.5% and 4.1%, respectively. This follows 3.9% growth in 2011 and 3.2% growth in 2012.

The US is estimated to expand by 2.0% this year, down from an earlier estimate of 2.1% in October. Similarly, UK growth has been slashed by 0.1pp to 1.0% this year.

The Eurozone saw a larger downward revision to growth, and is now expected to contract by 0.2% on the whole this year, compared with the initial estimate for a 0.2% expansion, owing to a delayed recovery.

The IMF said: "If crisis risks do not materialise and financial conditions continue to improve, global growth could be stronger than projected.

"However, downside risks remain significant, including renewed setbacks in the euro area and risks of excessive near-term fiscal consolidation in the United States. Policy action must urgently address these risks."

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