IMF raises growth forecast, but remains cautious

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Published: July 8,2010

Tags: debt, economy, global markets

BEIJING — The global economy is recovering faster than expected but Europe’s debt crisis might stall the rebound and governments need to shore up shaky public confidence, the International Monetary Fund said today.

The IMF raised its 2010 world growth forecast to 4.6 percent from 4.2 percent in April and boosted estimates for the United States and China. But its quarterly World Economic Outlook warned that “risks have risen sharply” and Europe has to quickly resolve debt problems and restore confidence in its banks.

Europe’s problems “could spill over to other regions and stall the global recovery,” said Jose Vinals, director of the fund’s monetary and capital markets department, at a news conference in Hong Kong.

“Further credible and decisive policy action is needed to resume progress on financial stability and keep the economic recovery on track,” Vinals said.

Risks so far are limited to financial markets and activity in other fields stabilized at a high level in May, the Washington-based fund said. It said industrial output and trade grew by double digits and there was a modest but steady recovery in developed economies and strong growth in emerging nations.

“The numbers for economic activity have come in strong — in fact, stronger than we have forecast,” said Olivier Blanchard, director of the IMF’s research department.

The fund raised this year’s U.S. growth forecast from 2.7 percent to 3.3 percent. The outlook for Germany and other European nations that use the euro common currency was unchanged at 1 percent.

A global “double dip,” or relapse into recession, is “very unlikely,” Blanchard said.

Asian economies recovered strongly this year, driven by buoyant exports and stronger domestic demand, the IMF said.

The fund raised its 2010 growth forecast for China to 10.5 percent from 10 percent in April, for Japan to 2.4 percent from 1.9 percent and for India to 9.4 percent from 8.8 percent. The estimate of the region’s growth rose to 7.5 percent from 7 percent.

However, it warned that weakness in Europe “would affect Asia through both trade and financial channels.”

Weak data from major economies in recent weeks have diminished confidence in a strong rebound from last year’s recession.

The fund’s forecast for 2011 growth was unchanged at 4.3 percent, a decline from this year’s rate.

In a move that might fuel concern the recovery is fading, the fund lowered its 2011 growth forecast for China from 9.9 percent to 9.6 percent, for Japan from 2 percent to 1.8 percent and for Britain from 2.5 percent to 2.1 percent.

In Europe, the IMF said governments must resolve uncertainty about banks’ exposure to sovereign debt and other risks and make sure lenders have enough capital and markets have adequate liquidity.

It said many advanced economies urgently need to push ahead financial reforms including recapitalizing banks, restructuring and consolidating banking industries and overhauling regulation.

“In the absence of complete banking sector recapitalization and restructuring, the flow of credit to the economy will continue to be impaired,” the IMF said.

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