News and Events

RECOVERY PICKING UP

The IMF maintained its forecasts for global growth for both 2011 and 2012 at 4.4% and 4.5%, respectively, saying the global recovery was strengthening even though downside risks have risen. The fastest growth was still coming from emerging economies, it said. China was expected to lead the way with growth of 9.6% this year, followed by India’s economy, which was projected to expand 8.2%.

By contrast, the United States was forecast to grow at a sub-par 2.8% rate this year and 2.9% in 2012. The IMF expressed concerns that US plans to cut its budget deficit were backsliding and it urged Washington to tackle politically thorny Social Security and tax reforms.

In Europe, the IMF said the recovery was gaining traction despite financial turbulence in Greece, Ireland and Portugal, which have sought IMF and European Union rescue loans to stabilise their financial systems.

The IMF revised up its outlook for the Eurozone to 1.6% this year and 1.8% in 2012. "The outlook is for a continued gradual and uneven expansion in Europe," the IMF said. The fund said many old policy challenges remained unaddressed even as new ones appear on the horizon.

In advanced economies, strengthening the recovery underway will require keeping monetary policy accommodative as long as wage pressures are subdued, inflation expectations are kept under control, and bank credit is sluggish.

The European Central Bank last week raised interest rates in the first of what is expected to be a series of moves. In contrast, the United Kingdom has held rates steady and the US Federal Reserve is expected to keep its easy policies in place through this year.

In emerging economies, the IMF said, it would be a mistake for policymakers to delay additional policy tightening until rich nations start to raise rates. "The task facing policymakers is to convince their national constituencies that these policy responses are in their best interest regardless of the actions others are taking," the IMF added. Emerging economies have accused the United States and other advanced economies for causing the surge in potentially destabilising capital flows with their easy monetary policies. Some, like Brazil, have introduced capital controls to manage the flow of investment money.