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IMF is confident in April figures; warns of fragile recovery

The International Monetary Fund (IMF) said yesterday it expected the world economy would grow at 3.2 percent this year and 4.1 percent next year, the same projections it issued last April.

The end of major hostilities in Iraq had "contributed to increasing signs of renewed recovery," alongside stronger equity markets and greater consumer confidence in the US and elsewhere, the IMF said in its latest World Economic Outlook report.

But it said these signs were "subdued" and "fragile."

The outlook, issued ahead of the upcoming meeting in Dubai of the boards of the World Bank and its sister organization, the IMF, projected US growth this year at 2.6 percent and 3.9 percent next year, better than the April forecast of 2.2 percent and 3.6 percent.

But the report sharply downgraded growth forecasts for the 12 European countries using the euro, saying the economy there would grow by only 0.5 percent this year and 1.9 percent next year. April's report had projected growth rates of 1.1 percent and 2.3 percent respectively.

The report said it expected developing countries to grow at a faster pace -- 5 percent this year and 5.6 percent next year -- than advanced economies, which were expected to grow at 1.8 percent this year and 2.9 percent last year.

It said the US was unlikely to be able to play its traditional leadership role in the global economy.

The IMF said record trade imbalances and a large government deficit are still an "important vulnerability," and risks to the US economy arise from concerns of a "future housing bust" and volatility in the dollar's exchange rate.

While strong productivity can reduce the risks to the economy, "looking forward it seems unlikely that the United States can or should provide the degree of support to the global economy over the medium-term that it has in the past," the report concluded.

It recommended low interest rates and other "accommodative policies" to goad global growth, and called for "medium-term consolidation" to brace for the large number of baby boomers nearing retirement in the US, Japan and Western Europe.

Asian economies were expected to lead the race, with growth projections at 6.4 percent this year and 6.5 percent next year.

China was expected to gallop forward at 7.5 percent growth this year and the next, while growth in Japan was expected to fall from 2 percent this year to 1.4 percent the next.

The Russian economy was anticipated to grow at 6 percent this year and 5 percent next year. Growth in the Middle East, primarily driven by oil production, was expected at 5.1 percent this year and 4.6 percent next.

"Tentative recovery" in Latin America was uneven, made worse by "political uncertainty," the report said. Regional growth was expected to triple from 1.1 percent this year to 3.6 percent next year.

"GDP growth in African countries has remained surprisingly resilient" the report said, with expected growth rates of 3.7 percent this year and 4.8 percent next year.
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