IMF revises up global forecast to near 4 percent for 2010

07:12, January 27, 2010      

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The International Monetary Fund (IMF) said Tuesday the global economy is recovering faster than previously anticipated and will grow 3.9 percent this year and 4.3 percent in 2011.

The IMF said it had revised upwards its earlier forecast for global growth by 0.75 percentage point from the October 2009 forecast.

RECOVERY SLUGGISH IN ADVANCED ECONOMIES

But the recovery is proceeding at different speeds around the world, with emerging markets, led by Asia relatively vigorous, but advanced economies remaining sluggish and still dependent on government stimulus measures, the IMF said in an update to its World Economic Outlook.

According to the update, output in the advanced economies is now expected to expand by 2 percent in 2010, following a sharp decline in output in 2009.

In 2011, growth is projected to edge up further to 2.5 percent.

Among advanced economy forecasts, growth in the United States, the world's largest economy, will reach 2.7 percent this year, a sharp 1.2 percent increase from the prior forecast.

The euro are is expected to grow 1 percent this year and 1.6 percent in 2011, while Japan is seen expanding 1.7 percent this year and 2.2 next.

"In spite of the revision, the recovery in advanced economies is still expected to be weak by historical standards, with real output remaining below its pre-crisis level until late 2011," said the report.

Moreover, high unemployment rates and public debt, as well as not-fully-healed financial systems, and in some countries, weak household balance sheets are presenting further challenges to the recovery in these economies.

KEY ASIAN EMERGING ECONOMIES LEADING GLOBAL RECOVERY

Growth in emerging and developing economies is expected to accelerate to about 6 percent in 2010, following a modest 2 percent in 2009, said the IMF in the update.

"In 2011, output is projected to accelerate further," it said, noting that stronger economic frameworks and swift policy responses have helped many emerging economies to cushion the impact of the unprecedented external shock and quickly re-attract capital flows.

China, the largest emerging economy, will expand 10.0 percent this year and 9.7 percent next year, much better than previous forecasts.

And India is expected to expand 7.7 percent this year and 7.8 percent next.

But the IMF also stressed that within both groups, growth performance is expected to vary considerably across countries and regions, reflecting different initial conditions, external shocks, and policy responses.

"For instance, key emerging economies in Asia are leading the global recovery," said the IMF in the update. "A few advanced European economies and a number of economies in central and eastern Europe and the Commonwealth of Independent States are lagging behind."

Meanwhile, the rebound of commodity prices is helping support growth in commodity producers in all regions, and many developing countries in sub-Saharan Africa that experienced only a mild slowdown in 2009 are well placed to recover in 2010.

POLICYMAKERS FACE EXTRAORDINARY CHALLENGES

Along with the update to its forecast, the IMF also released a new assessment of global financial conditions in its Global Financial Stability Report (GFSR).

It said that financial markets have rebounded since the lows of last March, the result of improving economic conditions and wide- ranging policy actions by governments.

"Notwithstanding the recent sell-off, risk appetite has returned, equity markets have improved, and capital markets have reopened," Jose Vinals, Director of the IMF's Monetary and Capital Markets Department, said.

But policymakers still face extraordinary challenges as they seek to unwind the unprecedented fiscal, monetary, and financial support they provided to keep their economies and financial markets from collapsing, the GFSR update pointed out.

The IMF said that the varying pace of recovery across countries called for a differentiated response in the unwinding of measures used to stimulated the economy and combat the crisis.

"For the moment, the recovery is very much based on policy decisions and policy actions," said IMF Chief Economist Olivier Blanchard in an IMF video interview. "The question is when does private demand come and take over. Right now it's ok, but a year down the line, it will be a big question."

IMF Managing Director Dominique Strauss-Kahn has warned that countries risk a return to recession if anti-crisis measures are withdrawn too soon.

Due to the still-fragile nature of the recovery, fiscal policies need to remain supportive of economic activity in the near term, and the fiscal stimulus planned for 2010 should be implemented fully, said the IMF.

However, given growing concerns about fiscal sustainability, countries should also make progress in devising and communicating exit strategies, it warned.

Source: Xinhua
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