October 2, 2009

IMF raises 2010 global growth forecast

Written by Sandrine Rastello & Timothy R Homan
Friday, 02 October 2009 11:16

ISTANBUL: The International Monetary Fund (IMF) raised its forecast for global growth next year as more than US$2 trillion (RM6.92 trillion) in stimulus packages and demand in Asia pull the world economy out of its worst recession since World War II.

The Washington-based IMF said the economy will expand 3.1% in 2010, more than a July forecast of 2.5%. China’s economy will grow 9% and India by 6.4%.

That compares with growth of 1.7% in Japan, 1.5% in the US and 0.3% in the euro region.

Days after President Barack Obama and other leaders declared that the Group of 20 is now the main forum for steering the global economy, the forecasts show emerging Asian nations powering the return to growth. The IMF, whose members are gathering herefor next week’s annual meeting, warned that the recovery would be “weak by historic standards” and said restoring banks to health remains a priority.

“The global economy appears to be expanding again, pulled by the strong performance of Asian economies and stabilisation or modest recovery elsewhere,” IMF said in its semi-annual World Economic Outlook. Still, the rebound will be “sluggish, credit constrained, and, for quite some time, jobless”.

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

With the economy recovering, the key challenge for policy makers next year will be deciding when to start raising interest rates and unwinding emergency lending to banks, the IMF said.

While a premature exit could pose a “significant” threat to the recovery, waiting too long could stoke asset bubbles in faster growing emerging economies.

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.

“It’s too early to say the crisis is behind us,” IMF managing director Dominique Strauss-Kahn said in an interview last week. “It’s absolutely right to discuss the exit strategies, to prepare them, but it will be much too early to implement them.”

The world escaped the threat of spiralling into a prolonged slump this year after governments poured trillions into their economies. The Standard & Poor’s 500 Index has surged 56% since March, oil prices have doubled and house prices have started to recover in the US and the UK.

Policy makers must nevertheless stay focused on making sure that the improvement in global credit markets and banking continues, the IMF said. It estimated yesterday that banks still have to announce a further US$1.5 trillion in writedowns.

While the recovery “is most evident in financial markets,” conditions are “still very difficult for borrowers,” the IMF noted. “There has been only very limited progress in removing impaired assets from bank balance sheets.”

Emergency government measures have also lumbered them with soaring debt. The IMF said yesterday that politicians 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 anticipated rebound in China may nevertheless counter some of the recessionary pressures still in the global economy, according to the report.

“The policy stimulus in China could support recoveries in other parts of Asia,” the IMF said. Kansai Paint Co, Japan’s largest paint maker, said on Sept 18 it aims to boost profit by a third next year as demand for cars in Asia drives sales. Alcoa Inc chief executive Officer Klaus Kleinfeld on Sept 3 raised his 2009 forecast for global aluminum consumption because of demand triggered by China’s stimulus spending.

Similarly, Brazil is expected to lead renewed expansion in Latin America, in part because of its increasing ties to Asia, the fund said.

In the US, where the credit crisis started in 2007, the economy will grow next year at almost double the 0.8% rate foreseen three months ago after contracting 2.7% in 2009, the IMF said. Rising unemployment, likely to exceed 10.1% in the second half of next year, and the temporary nature of Obama’s US$787 billion stimulus package, will restrain growth, the IMF said.

Former Federal Reserve Chairman Alan Greenspan said on Wednesday he sees the US economy slowing in the course of next year as the surge in stocks comes to an end.

“That flattening out will put some sort of dull face on 2010,” Greenspan said in a Bloomberg Television interview.

The 16-country euro region’s economy will shrink 4.2% this year, less than the 4.8% forecast in July, the IMF said.

The forecast for 1.7% growth in Japan next year was unchanged from a July forecast. The 5.4% contraction it predicted for this year is 0.6 percentage point less than in July. — Bloomberg

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Ibrahim bin Ramli@Nuang started his career with CIMB Wealth Advisors Berhad as Agency Manager in April, 2008.Previously he was an Internal Auditors and Accounts Executive with Perodua Sales Sdn Bhd since 17 August, 1994. His background:- 1.Certified of Achievement for Master Sales Leadership from Dr Lawrence Walter Ng of President of The Art Of Learning and International Of Learning Without Learning 2.Certified for eXtra Ordinary Performance of Lawrence Walter Award Certificate for One Million Ringgit Club 2007 3. Certified Life & General insurances 4. Conferred with Diploma in Business Studiess & Bachelor of Business Admin(Hons)Finance from UiTM, Terengganu Branch & Shah Alam respectively;

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