So says the International Monetary Fund, which has cut growth forecasts for 2012 amid predictions of deteriorating prospects and increasing risk.

The forecast for global growth was marked down to 3.3% from 3.5%, while Australia’s outlook for growth next year was cut to 3% from 3.5%.

IMF chief economist Olivier Blanchard said in advanced economies, growth was not too low to make a substantial dent in unemployment. And in major emerging market economies, growth that had been strong had decreased.

“In many countries, banks are still weak and their positions are made worse by low growth,” Blanchard said.

“As a result, many borrowers still face tight borrowing conditions.”

Compared to the IMF’s April 2012 forecasts, 2013 growth has been revised from 2% down to 1.5% for advanced economies, and from 6% down to 5.6% for emerging market and developing

economies.

Although Australia’s outlook was reduced, it still outperformed every other major advanced economy in the IMF’s World Economic Outlook report.

Treasurer Wayne Swan said this reaffirmed Australia in the face of a weaker global economy.

“The Australian economy remains the standout performer of the developed world,” Swan said.

“With solid growth, low unemployment, contained inflation, strong public finances and an enormous pipeline of investment in resources, which is boosting our economic capacity and export volumes.”

The IMF expected the Australian economy to grow by 3.3% in 2012 and 3% in 2013, representing growth twice as fast as advanced economies as a whole, which sat at 1.5%.

The IMF also forecasts Australia's unemployment rate to remain steady at 5.2% in 2012 and 5.3% in 2013.

The annual percentage change in gross domestic product for Australia was tipped to be 2.3% in Q4 of 2012 and 4.4% in Q4 of 2013.

“The IMF's growth outlook for Australia remains consistent with the economy growing around its trend rate,” Swan said.

Blanchard said the main forces pulling global growth down in advanced economies were fiscal consolidation and a weak financial system, while the main force pulling growth up was accommodative monetary policy.

“The financial system is still not functioning efficiently,” Blanchard said.

“Central banks continue not only to maintain very low policy rates, but also to experiment with programs aimed at decreasing rates in particular markets.”

In addition to these contrasting factors, Blanchard said there was a general feeling of uncertainty.

The IMF revealed its forecast rested on two crucial policy assumptions, with the first being European policymakers got the euro area crisis under control.

The second was dependent on US policymakers tackling their impending fiscal cliff.

In light of this, Australian stockbroking firm Patersons Securities said it was clear scope existed for a further nudging down in the growth numbers over coming months.

Patersons said the “core” euro economies were expected to see low but positive growth throughout 2012 and 2013, however, most euro area “periphery” economies were likely to suffer a sharp contraction in 2012, with no recovery likely until 2013.

Patersons also noted the projected growth by advanced economies was uninspiring.

“The IMF proclaimed that financial conditions have recently improved in response to euro area policymakers’ actions and the Federal Reserve’s quantitative easing three, but this bounce is reflective of central bank actions not any semblance of revival in real sector activity,” Patersons said.

Economic growth in leading emerging economies now forecast to be 5.3% in 2012, with countries including China, India, Russia, and Brazil all contributing to the reduced figure.

A key driver in their expected growth slippage is reduced growth in trade volumes - the volume of world trade is projected to expand by just 3.2% in 2012, from 5.8% in 2011 and 12.6% in 2010.

In developing Asia, real GDP growth was expected to average 6.7% in 2012 with China tipped as the main driver with activity spurred from a boost in public infrastructure projects.

Finally, the IMF confirmed fluctuations in demand had played a key role in the drop in commodity prices during the second quarter of 2012.

The WEO cited the slow recovery of advanced economies continued to exert a drag on base metal consumption, but it was the significant slowdown in major emerging market economies, notably China, that led to a sharp decline in global base metal consumption,

“China’s base metal consumption, which has been steadily increasing and now accounts for more than 40% of global consumption, slowed sharply in the second quarter,” the IMF said.

This article first appeared in ILN's sister publication MiningNews.net.