Thursday, January 21, 2010

IMF Raises Growth Projections for Next Year, Warns Rebound Will be Sluggish and Jobless

The IMF has raised the projections for global growth in 2010.

Stating that the more than $2 trillion in stimulus packages around thw world, and demand in Asia will pull the world's economy out of its "worst recession since World War II".

It projects the world's economy will expand 3.1% next year, with China growing 9% and India 6.4%. In Japan it will be 1.7%, and the U.S comes in with a very poor 1.5%, but better than the 0.3% in Europe.

However, the IMF also warned that the recovery would be “weak by historic standards” and is concerned with banks:

“The global economy appears to be expanding again, pulled by the strong performance of Asian economies and stabilization or modest recovery elsewhere,” "the rebound will be sluggish, credit constrained and, for quite some time, jobless.”

Blooomberg reported:

"The world economy will contract 1.1% this year, less than the 1.4% projected in July. So-called advanced economies including the U.S., Germany, and Japan will lead the slump, shrinking 3.4%. As a bloc, emerging economies will expand 1.7% this year.

“The recovery has started, meaning in most countries growth is coming back, nevertheless the crisis is not over,” IMF Managing Director Donminique Strauss-Kahn said at an event in Istanbul today. While a double-dip recession is “possible,” that is not the fund’s central scenario, he added.

In the richest nations, conditions can remain accommodative for an “extended” period because inflation “is likely to remain subdued as long as output gaps remain wide,” the IMF said. In some emerging economies, conditions may need to be tightened earlier and more flexible exchange rates could help smooth the process.

“Some of these economies are again seeing large asset- price increases in response to low interest rates, raising the danger of new asset-price bubbles,” the IMF said in the report. Other risks to the recovery include rising oil prices and a “virulent” return of the H1N1 flu, the IMF said.

Stimulus Effect

The IMF said that while the recovery is most evident in financial markets, conditions are still very difficult for borrower. “There has been only very limited progress in removing impaired assets from bank balance sheets.” "oliticians must commit to “large reductions in deficits” once the recovery is secured and devise a post-crisis strategy to ensure confidence in fiscal solvency.


“The policy stimulus in China could support recoveries in other parts of Asia,” the IMF said.


The IMF expects Brazil to lead renewed expansion in Latin America, in part because of its increasing ties to Asia.

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