MercoPress. South Atlantic News Agency

Rosier forecast from the IMF, but deflation remains a risk for richer nations

Chief economist Blanchard said “the brakes to the recovery are progressively being loosened”

The International Monetary Fund has raised its global growth forecast for the first time in nearly two years, saying fading economic headwinds should permit advanced nations to pick up the mantle of growth from emerging markets.

 But the IMF warned richer nations were still growing below full capacity, and it added the specter of deflation to its long list of risks that could derail the nascent recovery.

In an update to its World Economic Outlook report, the Fund predicted the global economy would grow 3.7 percent this year, 0.1 percentage points higher than its October projection. It said it sees growth of 3.9 percent in 2015.

Olivier Blanchard, the IMF's chief economist, said less government austerity and uncertainty, and a healthier financial system, were all allowing growth to speed ahead.

“The basic reason behind the stronger recovery is that the brakes to the recovery are progressively being loosened,” Blanchard told reporters on a conference call.

The IMF forecast higher growth in advanced economies this year but kept its outlook unchanged for the developing world, where higher exports to rich nations were expected to be offset by weak demand at home.

The United States is likely to be one of the bright spots, after a budget deal in Congress reduced some of the government spending cuts that had weighed on domestic demand.

US data last month showed a build-up in business inventories, the most since 1998, helped boost third-quarter GDP, and the IMF expects domestic demand to lift growth to 2.8 percent in 2014. In its previous forecast in October, it looked for growth of 2.6 percent.

The IMF also saw a rosier outlook for Britain, amid cheap credit and greater confidence. It raised its growth forecast to 2.4 percent in 2014 from 1.9 percent in October. It was the largest increase among major economies.

Japan's prospects also surprised to the upside, as the IMF predicted further fiscal stimulus should help offset some of the impact from a higher consumption tax planned for this spring. However, the Fund said Japan must focus on consumption and investment to keep growth sustainable, rather than relying on government spending and exports.

Japan launched an ambitious economic program last year to shock the economy out of nearly two decades of deflation.