The International Monetary Fund said in its latest World Economic Outlook that recovery is proceeding a little more quickly than it had expected. The IMF predicted that the global economy will grow 4.2% this year, a slight boost from its January forecast. Brightening prospects for the U.S. contributed significantly to the revision, the IMF said, with the economy likely to grow 3.1% this year.
GLOBALLY, recovery is going slightly better than expected, according to the IMF, which released its latest World Economic Outlook today. After shrinking by 0.6% last year, the global economy is likely to expand by 4.2% in 2010, 0.3% faster than the IMF projected in January. But economic performances will continue to vary widely around the world. Much of the upward revision to global growth can be attributed to a better outlook for the American economy. The IMF revised its forecast for American economic expansion in 2010 up 0.4%, to 3.1%. There was no change, by contrast, for the euro area, which already faced a poorer growth outlook. The euro area economy may only grow by 1% in 2010 and 1.5% in 2011. And much of the job of expansion will be handled by Germany and France, while southern European growth continues to lag. Spain’s economy will continue to shrink in 2010.
But the outlook is brightening for many emerging economies, including those in central and eastern Europe, for which growth forecasts were revised up by 0.8%. Developing Asia is enjoying a strong recovery, and the IMF indicated that both India and Brazil are likely to perform much better this year than initially antipated, notching growth rates of 8.8% and 5.5%, respectively.
The report suggested that planned stimulus measures for 2010 should be fully implemented, given the fragility of recovery, but it also noted that sovereign debt worries will become more severe as the year progresses. Debt issues are likely to prove especially problematic in Europe, which has the highest debt ratios and the slowest expected growth rates. The stressed southern European nations are in a damned-if-they-do-damned-if-they-don’t position. If little action is taken on debt, rising debt costs will choke of an already weak recovery. If aggressive action is taken, the blow to aggregate demand will likewise undermine growth.
Around the world, trade and production have recovered strongly, but employment remains well below pre-recession levels in most countries. Labour market weakness is helping to keep inflation expectations in check; the IMF forecasts consumer price increases in developed nations of 1.5% in 2010 and 1.4% in 2011. But the return to strong growth is boosting commodity prices once more. Oil prices may increase by 30% in 2010, said the IMF, an rise 7% larger than projected in January.
The overall picture is of a remarkable turnaround in global fortunes, given the depth of the recession. The year’s performance is much better than many would have dared to hope early last year. But in parts of Europe, the future is somewhat less certain, and because that uncertain future could lead to soveriegn debt crises that could potentially rattle financial markets, world leaders should remain vigilant.
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