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IMF raises 2010 growth projections but warns of pitfalls
Published in Saudi Press Agency on 08 - 07 - 2010


The world economy is in even better
shape than projected earlier this year thanks to emerging and
developing economies, the International Monetary Fund said Thursday, according to dpa.
But governments of advanced economies still must walk a precarious
tightrope between bail-outs and deficits, according to a revised
version of the IMF's World Economic Outlook.
The IMF predicted global growth of 4.6 per cent, up slightly from
the 4.2 per cent projected in April and considerably higher than the
3.9 per cent it expected in January.
Global projections for 2011 remained steady at 4.3 per cent.
Strong performances in Asia and Latin America drove the upgraded
expectations for 2010, the Washington-based IMF said in the report
released in Hong Kong. Leading the way are China, projected to grow
10.5 per cent; India at 9.4 per cent; and Brazil at 7.1 per cent.
Emerging and developing economies were altogether expected to grow
6.8 per cent this year, a half-percentage-point rise over the
previous IMF projection. Growth prospects also were favourable for
many developing countries in sub-Saharan Africa and for commodity
producers in all regions, the IMF said.
Commenting on the revision, Olivier Blanchard, the IMF's chief
economist said Thursday: "If you look at the figures from the last
three months of activity, they have been rather good and better than
expected.
"But at the same time there are clouds. The European tensions on
the fiscal side, the solvency of banks are creating uncertainties,
increasing risk aversion, decreasing bank lending, so the net effect
is a small adjustment."
Blanchard said the world was unlikely to see a double-dip
recession but warned that uncertainties in parts of the eurozone,
such as Greece, had the potential to spread, posing difficulties for
both financial stability and the economic outlook.
"While we predict the recovery will continue, it is clear that
downside risks have risen sharply," he said.
His warning was echoed by the IMF's financial counsellor Jose
Vinals, who called for decisive policy action to address the eroded
confidence in financial markets caused by high public deficit in some
eurozone countries.
The report said its upbeat forecast depended in part on the
eurozone rebuilding "confidence and stability" after the financial
uncertainties of recent months.
Growth projections for the eurozone remained unchanged for 2010 at
1 per cent. They, however, dropped 0.2 percentage points to 1.3 per
cent for 2011.
Still, the signs remained strong that the world economy has
recovered better than expected from its deepest recession in six
decades, in large part because of strong government investments in
advanced economies.
Echoing concerns at June's Group of 20 (G20) summit of the world's
largest developed and developing economies, the IMF warned against
"overly severe" government spending cuts as countries try to reduce
huge deficits caused by their economic stimulus measures.
There are also risks in "uncertainty about regulatory reforms and
their potential impact on bank lending" and from possible "renewed
weakness in the US property market," the IMF said.
The IMF even adopted a phrase from the G20 summit, saying that
"growth-friendly," medium-term fiscal consolidation plans were
"urgently needed."
"Most advanced economies do not need to tighten before 2011
because tightening sooner could undermine the fledgling recovery, but
they should not add further stimulus," the IMF advised.
It suggested that fiscal cutbacks for 2011 corresponding to about
1.25 per cent of gross domestic product were "broadly appropriate."
The IMF, however, warned that the fast-growing economies now
driving global growth should "start to tighten now" to avoid
overheating and inflation.


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