IMF says global economic recovery stronger, but…

The International Monetary Fund said Tuesday the global economy is bouncing back better than expected after two years of crisis but warned stimulus was still needed to support the recovery.

The IMF projected global growth of 3.9 percent in 2010, bouncing back from a 0.8 percent contraction in 2009 that marked the first downturn since World War II.

“The global recovery is off to a stronger start than anticipated earlier but is proceeding at different speeds in the various regions,” the fund said in an update of its twice-yearly World Economic Outlook report published on October 1.

The 2010 growth forecast was a solid 0.8 percentage points higher than the 3.1 percent estimated four months ago, reflecting “sluggish” growth in advanced economies offset by “relatively vigorous” growth in emerging and developing economies.

Global production and trade bounced back in the second half of 2009, and “confidence rebounded strongly on both the financial and real fronts, as extraordinary policy support forestalled another Great Depression,” the Washington-based institution said.

The recovery in gross domestic product (GDP), or goods and services output, still needs extraordinary support because there were few signs that private demand on its own account was taking hold, the fund said.

“A key risk is that a premature and incoherent exit from supportive policies may undermine global growth and its rebalancing,” the report said.

“For the moment, the recovery is very much based on policy decisions and policy actions. The question is when does private demand come and take over?” said IMF chief economist Olivier Blanchard.

Dominique Strauss-Kahn, the IMF managing director, has repeatedly cautioned against premature exits from anti-crisis measures, saying they risk a return to recession.

The United States, the world’s largest economy, was expected to post GDP growth of 2.7 percent in 2010, a sharp 1.2 percent increase from the prior forecast.

China, the emerging market leader and massive engine of the global recovery, will see growth accelerate to 10.0 percent this year, a full 1.0 percent higher than previously estimated.

The IMF held unchanged its growth forecast for Japan, the second-largest economy, at 1.7 percent.

The 16-nation eurozone’s GDP was set to expand 1.0 percent, up from the prior 0.3 percent estimate.

Advanced economies overall would grow by 2.1 percent, eclipsed by the 6.0 percent pace seen for the emerging and developing economies.

The global recovery will face the challenge of rising crude oil prices, which were expected to climb to 76 dollars a barrel on average this year and to 82.00 dollars in 2011, after 62.00 dollars in 2009.

Big risks remain to the recovery, including elevated unemployment and fiscal deficits and debt, the 186-nation fund said.

“High fiscal deficits and debt are raising concerns about sustainability and sovereign risk — which is the primary consideration in many countries.”

Low interest rates “that might be contributing to asset price bubbles” were also a concern.

Jorg Decressin, head of the IMF’s world economic studies division, ruled out immediate bubble risks in China despite its sizzling economy.

“Asset prices in some specific sectors, in some specific regions of China, may be thriving but there’s certainly no widespread asset bubble,” he said at a news conference after the report’s release.

The report said that “crucially, there remains a pressing need to continue repairing the financial sector in advanced and the hardest-hit emerging economies.”

In a separate update of its Global Financial Stability Report, the IMF said: “Even though some bank capital has been raised, substantial additional capital may be needed to support the recovery of credit and sustain economic growth.”

Source: AFP

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