Global recovery under way :
Likely to be slow - IMF
* Global activity now on the rise
again, expected to reach three percent next year
* Rebound driven mainly by China, India
* Restoring financial sector health, continued macro policy support
After a deep recession, global economic growth has turned positive,
driven by wide-ranging, coordinated public intervention that has
supported demand and reduced uncertainty and systemic risk in financial
markets, according to the IMF's latest report on the global economy.
The recovery is expected to be slow, as financial systems remain
impaired and support from public policies will gradually have to be
withdrawn. Households in economies that suffered asset price busts will
continue to rebuild savings while struggling with high unemployment,
according to the October World Economic Outlook (WEO), released on
"The recovery has started. Financial markets are healing," said IMF
Chief Economist Olivier Blanchard. "In most countries, growth will be
positive for the rest of the year, as well as in 2010," he said. But he
stressed that, to sustain the recovery, private consumption and
investment will have to strengthen as high public spending and large
fiscal deficits are unwound.
current numbers should not fool governments into thinking that the
crisis is over," he said at a press conference. He urged countries to
coordinate policies to achieve a global rebalancing and sustain the
The report was released ahead of the IMF-World Bank Annual Meetings
being held in Istanbul, Turkey.
Projected growth numbers
Key WEO projections include:
* World growth. After contracting by about one percent in 2009,
global activity is forecast to expand by about three percent in 2010
* Advanced economies are projected to expand sluggishly through much
of 2010. Average annual growth in 2010 will be only modestly positive at
about 11/4, following a contraction of 31/2 percent during 2009.
* Emerging and developing economies. Real GDP growth is forecast to
reach five percent in 2010, up from 1 3/4 percent in 2009. The rebound
is driven by China, India, and a number of other emerging Asian
countries. Economies in Africa and the Middle East are also expected to
post solid growth of close to four percent, helped by recovering
The pace of recovery is slow, and activity remains far below
precrisis levels. The pickup is being led by a rebound in manufacturing
and a turn in the inventory cycle, and there are some signs of gradually
stabilizing retail sales, returning consumer confidence, and firmer
housing markets. As prospects have improved, commodity prices have
staged a comeback from lows reached earlier this year, and world trade
is beginning to pick up.
The triggers for this rebound are strong public policies across
advanced and many emerging economies that have supported demand and all
but eliminated fears of a global depression. These fears contributed to
the steepest drop in global activity and trade since World War II.
Central banks reacted quickly with exceptionally large interest rate
cuts as well as unconventional measures to inject liquidity and sustain
credit. Governments launched major fiscal stimulus programs, while
supporting banks with guarantees and capital injections. Together, these
measures reduced uncertainty and increased confidence, helping to
improve financial conditions. This was seen in strong rallies across
many markets and a rebound in international capital flows. However, the
environment remains very challenging for lower-tier borrowers. More
generally, as emphasized in the October 2009 Global Financial Stability
Report (GFSR), the risk of a reversal is a significant market concern,
and a number of financial stress indicators remain elevated.
Risks to recovery
The key policy requirements remain restoring financial sector health
while maintaining supportive macroeconomic policies until the recovery
is on a firm footing.
However, policymakers need to begin preparing for an orderly
unwinding of extraordinary levels of public intervention,
The key short-term risk is that the policy forces driving the current
rebound will gradually lose strength, and the real and financial
forces-although slowly building-will remain weak, as financial sectors
have not yet been restored to health. Thus, premature exit from
supportive policies must be avoided.
On the financial front, a concern-mainly for the major advanced
economies-is that continued public skepticism toward perceived bailouts
for the very firms considered responsible for the crisis undercuts
public support for financial restructuring. This could pave the way for
a prolonged period of stagnation, according to the WEO.
Sustaining healthy growth over the medium run will depend critically
on addressing the supply disruptions generated by the crisis and
rebalancing the global pattern of demand.
To complement supply-side efforts, there must also be adjustments in
the pattern of global demand. Specifically, many economies that have
followed export-led growth strategies and have run current account
surpluses will need to rely more on domestic demand and imports. This
will help offset subdued domestic demand in economies that have
typically run current account deficits and have experienced asset price
(stock or housing) busts, including the United States, United Kingdom,
parts of the euro area, and many emerging European economies.
To accommodate demand-side shifts, there will need to be changes on
the supply side. This will require actions on many fronts, including
measures to repair financial systems, improve corporate governance and
financial intermediation, support public investment, and reform social
safety nets to lower precautionary saving.