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International Monetary Fund Expects Global Economy to Grow Faster Than Expected

Wednesday, January 26th 2011 - 18:43 UTC
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The International Monetary Fund (IMF) has said that the global economy will grow faster this year than expected.

The IMF increased its growth forecast from 4.2% to 4.4%, but warned of a two-speed recovery as advanced economies grow slower than emerging ones.

It said Europe's economic health was weak, and said the size of the bank rescue fund should be increased.

Emerging countries, however, should see growth of 6.5% this year and a similar expansion in 2012, the IMF said.

In its World Economic Outlook, the IMF said US growth was projected to reach 3%, up from the previous estimate of 2.3% published in October.

The IMF estimates UK growth will be 2%, unchanged from its previous forecast.

And there was also no change in the 1.5% growth forecast for both the eurozone and for Japan.

The IMF said in its report: “In advanced economies, activity has moderated less than expected, but growth remains subdued, unemployment is still high, and renewed stresses in the euro area periphery are contributing to downside risks.”

In a separate report on global financial stability, the IMF said problems in Greece and the Irish Republic have reignited fears about sovereign debt.

“Banks face significant funding needs now and over the next two years. In many advanced economies, we need to deal with the legacy of the crisis by resolving financial fragilities once and for all,” said Jose Vinals, the IMF's director of monetary and capital markets.

The European Financial Stability Facility, which has a fund of £379 billion, could be wiped out if a larger European economy needed rescuing.

“More than two years after the onset of the financial crisis, global financial stability is still not assured. It is still at risk,” Mr Vinals said.

However, emerging economies were more “buoyant”, the IMF said, although the signs of overheating and inflation pressures were a worry.

Growth projections for China and India were unrevised at 9.6% and 8.4% respectively.

Sub-Saharan Africa is predicted to see economic expansion of 5.8%.

But the rapid growth forecast for emerging economies has a downside, the IMF warned. The flow of foreign capital into emerging market economies would continue, helping to push up inflation.

Tighter monetary policies were needed to curb the inflationary impact, the organisation said.

Emerging economies account for almost 40% of global consumption, so any slowdown in these economies “would deal a serious blow to the global recovery,” the IMF warned.



Categories: Economy, International.
Tags: IMF.

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