IMF boosts 2010 growth forecasts

Many world economies may pull out of recession earlier than previously thought, the International Monetary Fund (IMF) said today.

The IMF lifted forecasts across the board due to the impact of action by several governments as well as signs of firmer house prices, recovering consumer confidence and a pick-up in world trade.

World output is forecast to rise by 3% in 2010 compared with a 1% decline this year, pulled up by stronger Asian economies and recovery in developed nations.

Growth of 1.3% is expected for the US and a 0.3% rise in output predicted for the Eurozone.

Fears of a global depression have been “all but eliminated” but despite the more optimistic figures, chief economist Olivier Blanchard said: “The current numbers should not fool governments into thinking that the crisis is over.”

The IMF said the main focus for policymakers should be on restoring the health of the banking sector, while maintaining economic stimulus measures until the recovery is on a firm footing.

“Premature exit from supportive policies must be avoided,” the IMF said, although politicians also need to begin preparations for an orderly unwinding of “extraordinary levels” of public support.

But the organisation added that the public had to grin and bear the widespread support for the banking system, where some firms have provoked outrage by continuing to pay huge bonuses.

A key recovery risk was “continued public scepticism” over the bailouts for those responsible for the crisis, damaging support for the rebuilding of the banks and “thereby prolonging the crisis”, it said.

“The result would be an even more sluggish recovery or, possibly, a long-lasting credit crunch and the equivalent of a ’lost decade’ for growth,” the IMF said.

“If the recovery were to stall and be followed by a prolonged period of stagnation or very low growth, deficits and debt could balloon to difficult-to-sustain levels,” it added.