MercoPress. South Atlantic News Agency

World economic growth threatened by global imbalances

World economic growth will be higher than previously thought, 5.1% in 2006 and 4.9% in 2007, forecasted the International Monetary Fund (IMF). Predictions are both 0.25% higher than the IMF outlook given in April.

However, the IMF warned that global imbalances posed risks - in particular, the US budget deficit and China's vast trade surplus. The report was released at the start of the IMF and World Bank's annual meetings Wednesday in Singapore.

Surpluses in oil producing nations will stay high and the Euro zone economy will continue to recover, the IMF predicted. The exception is Germany, where the IMF believes growth will slow as a result of an increase in VAT to 19%.

There was a one-in-six chance that growth could fall to 3.25% in 2007, the IMF said. Rising oil prices and an economic downturn in the US triggered by a fall-off in the housing market were among factors posing the biggest threats to continuing global growth. IMF predicts US growth would slow from 3.4% to 2.9%.

"The potential for a disorderly unwinding of the global imbalance remains a concern," underlines IMF pointing out to the trading imbalances that lie at the heart of many of the fears. China posted a record of 18.8 billion US dollars trade surplus with the rest of the world in August. By contrast the US, the world's largest economy, has seen its trade deficit reach over 64 billion dollars.

One explanation for this huge gap is the weakness of China's currency, which makes Chinese goods comparatively cheap, thereby boosting exports. The IMF said central banks had to weigh up the risks of growth and inflation, anticipating some more interest rate tightening might be necessary.

According to the IMF report Japan, which moved away from zero interest rates in June after six years, should continue to increase rates gradually.

The IMF/World Bank gathering comes at a time when the IMF is under pressure to reform, giving greater decision-making to countries such as China and developing nations, including those in Africa.