Soaring oil prices and inflation in emerging economies pose new risks to global recovery but are not yet strong enough to derail it, the IMF said on Monday.
The global lender’s latest health-check of world economic prospects marked a departure from recent years when its focus was on the financial crisis and recession in rich nations.
The fastest growth in recent years has come from emerging markets like China, Brazil and India, which helped offset the deep downturns in the US and other rich nations touched off by burst housing bubbles.
Now, the IMF warns those very economies risk asset bubbles akin to the ones that sparked the 2007-2009 financial crisis.
“The challenge for many emerging and some developing economies is to ensure that present boom-like conditions do not develop into overheating over the coming year,” the IMF said in its World Economic Outlook report.
IMF chief economist Olivier Blanchard said there was no overwhelming threat to the world economy, but there were trouble spots that need to be dealt with.
“There is not any major downside risk at this point,” he told reporters.
However, he cited a still-ailing financial sector in Europe and a high US debt load as areas demanding attention.
Still, even the prospect of oil above US$120 a barrel was seen as not enough to imperil the steady global expansion.
“Commodity prices have increased more than expected ... [but] we don’t think that this time these increases will derail the recovery,” Blanchard said.
The IMF’s central scenario remains one of slow-paced recovery. It kept its forecasts for global growth for both this year and next at 4.4 percent and 4.5 percent respectively.
However, it said emerging markets have become a particular worry spot. IMF also highlighted the searing impact of rising food and commodity prices on poorer countries and warned that inflation will remain elevated for a while.
Somewhat surprisingly, the IMF said it saw little lasting impact from Japan’s triple disaster — earthquake, tsunami and nuclear crisis — although it cautioned of great uncertainty.
It cut its forecast for Japanese growth this year only slightly by 0.2 percentage points to 1.4 percent and raised its projections for next year’s growth to 2.1 percent, up 0.3 percentage points from its earlier estimate.
Speaking of advanced economies collectively, the IMF said a recovery was continuing and risks of a “double-dip” recession had faded. However, it said unemployment was still high and more had to be done to cut budget deficits in the US and elsewhere.
Blanchard said other countries would need to become a greater source of global demand if the US were to tighten its belt as much as needed.
The fastest growth was still in emerging economies, the IMF said. China was expected to lead the way with 9.6 percent growth this year, followed by India, at an 8.2 percent rate.
By contrast, the US was forecast to grow a sub-par 2.8 percent this year and 2.9 percent next year.
In Europe, the IMF said recovery was gaining traction despite financial turbulence in Greece, Ireland and Portugal. The IMF revised up its euro zone outlook to 1.6 percent this year and 1.8 percent next year.
TAIWAN
The IMF revised its growth forecast for Taiwan upward, predicting growth of 5.4 percent this year, compared with the 4.4 percent that it forecast last October. It said Taiwan’s economic growth should reach 5.2 percent next year.
Meanwhile, in advanced economies, strengthening the recovery will require keeping monetary policy accommodative as long as wage pressures are subdued, inflation expectations are under control and bank credit is sluggish, the IMF said in the report.
As for emerging economies, the fund said that it would be a mistake for officials and policymakers to delay additional policy tightening until rich nations start to raise their rates.
Additional reporting by staff writer
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