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Thu, Jan 18, 2007 - Page 10 News List

IMF forecasts solid growth


IMF chief Rodrigo Rato said on Tuesday the world economy remained robust with the US set for a "soft landing" and China extending its breakneck expansion.

But there remained the risk of a "disorderly adjustment" in the global economy, with Asian currency rates still too rigid and oil prices remaining volatile, the IMF managing director said.

Addressing a New Year press conference, Rato said the IMF was progressing with plans to make the six-decade-old organization more relevant to its fast-changing membership.

"After four consecutive years of strong growth, we expect that global growth will remain solid in 2007, approaching five percent for the year," Rato said.

The IMF official forecast predicts global growth this year of 4.9 percent.

"I believe we are facing a soft landing in the US," he said, with the world's largest economy cooling after years of rapid growth.

"Economic recovery in Europe has broadened and growth in Japan is broadly on track after an earlier soft patch," he added.

Falling energy prices will support the global economy, Rato noted, "although we might see volatility in oil prices down the road."

China is set for another year of growth above 10 percent, the IMF chief said, while urging Beijing to take more measures to rein in unproductive investment.

Rato reaffirmed that China should open up its financial markets and currency regime more "to allow market forces to determine prices and allocations of resources in the Chinese economy more freely."

East Asian economies in general are highly competitive and do not need their "heavy reliance" on managed exchange rates, the IMF chief said.

As China and other Asian countries ran up massive trade surpluses on the back of export-led growth, deficits in the US have mounted to record levels.

That has created concern that the world economy is dangerously out of kilter, prompting Rato to set up a new surveillance mechanism for major states to discuss how to redress the imbalances under IMF auspices.

He declined to give details about how the multilateral consultations are progressing, but said he would report back in public at the IMF and World Bank's annual meetings in April.

The meetings will also see Rato elaborate on steps being taken by the IMF to address criticism that it is becoming irrelevant to developing countries.

With no major crises to manage and many countries fearful of the fund's free-market policy prescriptions, the IMF has been deprived of regular income from lending repayments and now faces a financial crunch of its own.

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