IMF Raises World Growth Forecast, But Warns On EU Crisis

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 Thursday.

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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International Monetary Fund: http://www.imf.org

(This version CORRECTS Corrects that April forecast was 4.2 percent, instead of 4.1 percent. Moving on general news and financial services.)

Comments

[vippy]

11:59 AM on 07/09/2010

Such dummies, just another excuse to raise the oil/gas prices! Europe is moving right along with their imports and exports while we will be looking at a double dip recession with hyperinflation.
Apparently, our politicians are not done with us yet. Gas is overpriced by at least $ 1.00 which could help with the recovery. Talk about shooting yourself in the foot!

[Kassandra]

09:14 PM on 07/08/2010

The IMF can kiss my sweet patooty

[Plan B Economics]

11:51 AM on 07/08/2010

OK IMF..."things are better, but they may be worse"...way to hedge your forecasts.

You want my forecast? Look around you. Do you know someone that is unemployed? Are you unemployed?

Seems like 'growth' is in the eye of the beholder. http://www.planbeconomics.com/wealthcreation/

[hollybork]

11:25 AM on 07/08/2010

Good for the IMF. Unfortunately for me and other individual human beings, we do not have perpetual existence and do not feel as rosey about things. We also do not have unlimited money and power, so we are feeling a little more squeamish about our futures.

[FWDpost]

10:16 AM on 07/08/2010

IMF wants to reduce interest exeption on U.S. mortgages and institute a national sales tax.
Who elected these capitalist pigs to run our country?

[pjwrites]

10:54 AM on 07/08/2010

The IMF is the center of the concentration of power into the banksters hands. If you have any questions at all about the economy, human starvation, oil spills, global warming, etc., you need only turn to the banksters. It's been said many times before and sounds so cliched these days, but it's never been truer: follow the money, find the answers.