Global growth slowly improving: IMF

Global growth is slowly improving as the US recovery gains traction and dangers from Europe recede, but risks remain elevated and the situation is very fragile, the IMF said yesterday.

A flare-up of the eurozone sovereign debt crisis or sharp escalation in oil prices on geopolitical uncertainty could disrupt the world economy finding its feet now tensions in the eurozone have subsided, the IMF said.

“An uneasy calm remains. One has the feeling that at any moment things could well get very bad again,” IMF chief economist Olivier Blanchard told reporters as he detailed its World Economic Outlook report.

“Our baseline forecast is for low growth in advanced countries, especially in Europe, but with downside risks being extremely present,” he said.

The global economy is on track to expand this year by 3.5% and by 4.1% in 2013, up slightly from 3.3% and 3.9% GDP output respectively that the IMF forecast in January.

Since then, Greece has restructured its debt, Italy and Spain are adopting tough fiscal measures, and eurozone leaders have agreed to enlarge their bailout fund, causing financial market tensions to ease. The US, meanwhile, is gradually gaining momentum, while China and other emerging economies appear on track for gradual slowdowns without crashing, the IMF said.

To secure the global recovery, the IMF urged central banks in the US, the eurozone, and Japan to stand ready to deliver further monetary easing; governments to exercise caution over the pace of budget cutbacks wherever feasible; and Europe to consider using public funds to recapitalise banks.

While European leaders have made “major progress” in building firewalls against financial contagion, the region faces a tricky balance of cutting government debt and restoring competitiveness without excessively stifling growth, it warned.

The eurozone is likely to endure a mild recession this year, shrinking by 0.3% and then posting 0.9% growth in 2013, the IMF said. That is a minor improvement from the 0.5% 2011 contraction followed by 0.8% growth that it forecast in January.

The US is “pulling itself up by its bootstraps” as domestic conditions improve, the IMF said, though the pace of growth remains constrained.

The IMF lifted its forecast for the US to 2.1% this year, up from 1.8% in January. For 2013, it nudged up the forecast to 2.4% from 2.2%.

The IMF is sanguine on the outlook for China, leaving its growth forecasts unchanged at 8.2% this year and 8.8% in 2013. Strong domestic investment and growing consumption as the middle class expands are supporting growth offsetting a slowing exports.

Reuters