IMF revises up global forecast to near 4 percent for 2010
The global economy, battered by two years of crisis, is recovering
faster than previously anticipated, with world growth bouncing back from
negative territory in
* World
economy bouncing back, but advanced economies drag.
* Global recovery from recession led by emerging markets.
* Countries should maintain stimulus measures while recovery not
well established. |
2009 to a forecast 3.9 percent this year and 4.3 percent in 2011, the
International Monetary Fund said in its latest forecast.
But the recovery is proceeding at different speeds around the world,
with emerging markets, led by Asia relatively vigorous, but advanced
economies remaining sluggish and still dependent on government stimulus
measures, the IMF said in an update to its World Economic Outlook,
published on January 26.
“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. Right now it’s ok, but a year down the line, it will be a big
question,” IMF Chief Economist Olivier Blanchard said in an IMF video
interview.
IMF Managing Director Dominique Strauss-Kahn has warned that
countries risk a return to recession if anti-crisis measures are
withdrawn too soon.
The IMF said it had revised upwards its earlier forecast for global
growth by 3/4 percentage point from the October 2009 forecast.
Risk appetite returning
Along with the update to its forecast, the IMF also released a new
assessment of global financial conditions in its Global Financial
Stability Report (GFSR). It said that financial markets have rebounded
since the lows of last March, the result of improving economic
conditions and wide-ranging policy actions by governments.
“Notwithstanding the recent sell-off, risk appetite has returned,
equity markets have improved, and capital markets have reopened,”
Director of the IMF’s Monetary and Capital Markets Department Jose
Vinals said. But policymakers still face extraordinary challenges as
they seek to unwind the unprecedented fiscal, monetary, and financial
support they provided to keep their economies and financial markets from
collapsing, the GFSR update pointed out.
Strength of U.S. consumption
The WEO forecast said that in advanced economies, the beginning of a
rebuilding of corporate inventories and the unexpected strength of U.S.
consumption had contributed to a rebound in confidence, and inflation
was expected to remain contained. But high unemployment rates, rising
public debt, and, in some countries, weak household balance sheets
present further challenges to the recovery.
The IMF report said that the varying pace of recovery across
countries called for a differentiated response in the unwinding of
measures used to stimulate the economy and combat the crisis.
Due to the still-fragile nature of the recovery, fiscal policies need
to remain supportive of economic activity in the near term, and the
fiscal stimulus planned for 2010 should be implemented fully.
However, given growing concerns about fiscal sustainability,
countries should also make progress in devising and communicating exit
strategies.
Financial sector repair
Crucially, there remains a pressing need to continue repairing the
financial sector in advanced and hardest-hit emerging economies. In
these cases, policies are still needed to tackle bank’s impaired assets
and restructuring.
Unwinding the financial sector support measures gradual; it can be
facilitated by incentives that make measures less attractive as
conditions improve. Policymakers will also need to move boldly to reform
the financial sector with the objectives of reducing the risks of future
instability and rethinking how the potential fallout of financial crises
would be borne in the future, while at the same time making the sector
more effective and resilient.
At the same time, some emerging market countries will have to design
policies to manage a surge of capital inflows. Macro-prudential policies
can be used to address the potential for bubbles at an early stage by
limiting a build up in risks. |