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IMF Lifts Global Growth Forecasts Despite Risks

IMF Lifts Global Growth Forecasts Despite Risks

The International Monetary Fund raised its global growth projections for this year and next on Tuesday, citing improvements in the U.S. economy and emerging economies.

However, the Washington-based lender expects growth to be relatively weak, as risks remain elevated, especially from Europe. The geopolitical uncertainties linked to the oil market also weigh on the outlook, the IMF's biannual World Economic Outlook report said.

The IMF raised the growth outlook for 2012 to 3.5 percent from the 3.3 percent predicted in a January update to the WEO report. In a September report, the lender forecast 4 percent growth for this year.

The April WEO was released just ahead of the Spring Meetings of the IMF and the World Bank in Washington. The growth projection for 2013 was increased to 4.1 percent from the January prediction of 3.9 percent. The world economy grew 3.9 percent in 2011.

"Our baseline is that growth is going to be slow in advanced economies; sustained, but not great, in emerging market and developing economies," IMF Chief Economist Olivier Blanchard said. "But the risk of things turning bad again in Europe is high."

Growth in the advanced economies is seen at 1.4 percent for this year, better than the 1.2 percent previously forecast. Next year, the group is expected to see 2 percent growth.

The U.S. economy is seen growing 2.1 percent this year, better than the previous forecast of 1.8 percent. Meanwhile, the Eurozone is expected to shrink 0.3 percent, which is narrower than the 0.5 percent drop seen previously.

Within the euro area, the growth projection for Germany was raised to 0.6 percent for this year, while the outlook for next year was left unchanged at 1.5 percent.

The French economy is expected to grow at a faster pace of 0.5 percent this year, while Italy is forecast to be in recession, with a 1.9 percent drop seen for this year and a 0.3 percent contraction projected for 2013.

Spain was the only country among the big four euro area members to witness a downgrade in this year's growth forecast.

The embattled country's economy is expected to contract 1.8 percent, slightly worse than the 1.7 percent contraction seen earlier. In 2013, the economy is expected to grow by 0.1 percent, while it was forecast to shrink 0.3 percent previously.

The 2012 growth forecasts for Japan and the U.K. were raised to 2 percent and 0.8 percent, respectively. Canada's growth outlook for this year was lifted to 2.1 percent.

Emerging and Developing Economies are expected to grow 5.7 percent this year and 6 percent in 2013. In January, the corresponding figures were 5.4 percent and 5.9 percent.

The IMF raised Russia's growth forecast to 4 percent for 2012 and to 3.9 percent next year. China's 2012 growth projection was also increased slightly to 8.2 percent. Meanwhile, India's outlook was reduced to 6.9 percent from 7 percent.

China is expected to log 8.8 percent growth next year, while India is forecast to expand 7.3 percent.

The IMF is of the view that better policies in Europe have helped improve the economic climate, but prospects are still fragile. Hence, the lender is seeking additional resources to enhance its ability to contain economic contagion in the event of a new crisis.

In an interview with Italian newspaper Il Sole 24 Ore, IMF Managing Director Christine Lagarde said she is hopeful of lifting the organization's lending capacity by more than $400 billion after this week's meetings with global leaders.

Elsewhere today, Japan said it will provide $60 billion to the IMF to fight the debt crisis amid renewed tensions in the Eurozone.

In March, Eurozone finance ministers decided to raise the combined size of the region's bailout funds to $1.1 trillion to prevent the possible spillover of the debt crisis in some member states.

"The building of the firewalls, when it is completed, will represent major progress," Blanchard said.

But the firewalls would not, by themselves, solve the difficult, fiscal, competitive, and growth issues faced by some struggling economies, he warned.

by RTT Staff Writer

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