Global outlook good but risks remain

The IMF yesterday predicted the global recovery would strengthen this year as output in richer nations picked up, but it warned of rising risks in emerging economies.

In its latest global economic snapshot, the IMF said better policies were needed to raise the world’s productive capacity and avoid a prolonged period of sluggish growth.

Global output should expand 3.6% this year, slightly lower than forecast in January, and grow 3.9% next year, the IMF said in its twice-yearly world economic outlook.

But the number masks an increasing divergence among countries. While less fiscal austerity should help unshackle growth in the US and Europe, emerging markets are likely to grow more slowly than thought just a few months ago due to tighter financial conditions, the IMF said.

Geopolitical risks have also entered the picture because of the conflict between Russia and Western countries over Ukraine.

“The strengthening of the recovery from the Great Recession in the advanced economies is a welcome development,” the IMF said.

“But growth is not evenly robust across the globe, and more policy efforts are needed to fully restore confidence, ensure robust growth, and lower downside risks.”

The IMF said the US should enjoy above-trend growth of 2.8% this year thanks to less severe budget cutting, a recovering housing market, and an easy monetary policy.

Economic activity in the eurozone should pick up slightly as austerity slows. However, it continues to suffer from financial fragmentation and weak credit supply and demand, it said.

The IMF repeated warnings about the very low level of inflation in the eurozone and said it saw about a 20% chance of growth-sapping deflation in the region.

“Sustained low inflation would not likely be conducive to a suitable recovery of economic growth,” the IMF said, again calling on the ECB to ease monetary policy.

The IMF forecast that emerging markets overall would grow 4.9% this year, slightly lower than it had predicted in January.