The global economy is expected to grow more than initially estimated in 2010, led by growth in emerging and developing economies, the International Monetary Fund said Wednesday, upwardly revising its outlook.
The global lender now sees world economic growth of 4.2% this year, better than the 3.9% expansion predicted in January. Growth is expected to nudge up to 4.3% next year. The global economy contracted by 0.6% in 2009, as world trade slumped and credit froze up.
"We find ourselves at an important new stage of the crisis," said IMF Research Department Director Olivier Blanchard. "A global depression has been averted. The world economy is recovering, and recovering better than we had previously thought likely."
However, Blanchard added that achieving strong, sustained, and balanced growth would require more work, namely fiscal consolidation in advanced countries, exchange rate adjustments, and a rebalancing of demand across the world.
Global activity is recovering at varying speeds, tepidly in many of the advanced economies but solidly in most emerging and developing economies.
Among emerging and developing economies, Asia is leading the recovery, while many emerging European and some Commonwealth of Independent States economies are lagging behind, the IMF said.
In its latest World Economic Outlook, the IMF said among the advanced economies, the United States is off to a better start than Europe and Japan. The 2010 forecast for the U.S. was revised up to 3.1% from 2.7%.
The Eurozone economy is expected to expand by 1%, unchanged from the January estimate, while the outlook for economic growth Japan has been revised to 1.9% from 1.7%. British economic growth is forecast at 1.3%.
China's growth is forecast at 10% in 2010, with India also expected to see rapid growth of about 8.8%. IMF also said sub-Saharan Africa has weathered the crisis well and its recovery is expected to be stronger than in previous global downturns.
Emerging and developing economies are set to grow 6.3% this year and 6.5% next year. Meanwhile, advanced economies are forecast to log total growth of just 2.3% in 2010 and 2.4% in 2011.
However, the Fund said its latest outlook remains unusually uncertain and downside risks stemming from fiscal fragilities have come to the fore.
"A key concern is that room for policy maneuvers in many advanced economies has either been exhausted or become much more limited," the IMF said.
Further, the IMF warned that sovereign risks in advanced economies could undermine financial stability gains and extend the crisis. The rapid increase in public debt and the deterioration of fiscal balance sheets could be transmitted back to banking systems or across borders.
It noted that such issues call for policy action to sustain the recovery of the global economy and financial system. Given the still fragile recovery, the IMF said fiscal stimulus planned for 2010 should be fully implemented, except in economies that face large increases in risk premiums.
The IMF report said the policy agenda should include several important elements such as reducing sovereign risk, unwinding the stimulus, combating unemployment, buttressing financial stability, agreeing to the regulator reform agenda, and tackling global imbalances.
For the world economy to sustain a high-growth trajectory, the IMF suggests that the economies that had excessive external deficits before the crisis need to consolidate their public finances in ways that limit damage to potential growth and demand.
Concurrently, economies that ran excessive current account surpluses will need to further increase domestic demand to sustain growth. The Fund urged global policymakers to exploit policy synergies, especially between fiscal policy and structural reform.
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