The International Monetary Fund’s latest forecast upgrades its global economic growth predictions for next year by 0.5% from its predictions three months ago, but warns that the pace of recovery remains uncertain.
It characterises the current recession as “unprecedented in the post–World War II era”, but now projects economic growth to reach 2.5% in 2010, as outlined in the World Economic Update published today.
While it is the United States and Japan whose outlooks are marked up the most of advanced economies next year, newly industrialised Asian countries economies are also looking much rosier next year than predicted three months ago.
“The good news is that the forces pulling the economy down are decreasing in intensity,” IMF Chief Economist Olivier Blanchard told a July 8 press briefing. “The bad news is that the forces pulling the economy up are still weak. The balance is slowly shifting, and this leads us to predict that, while the world economy is still in recession, the recovery is coming. But it is likely to be a weak recovery,” Blanchard said.
However, the Financial Times reports investors signalled doubts about the strength of any economic comeback by selling off commodities, notably oil, gold, and stocks.
The IMF’s Monetary and Capital Markets Department Director José Vinãls attributed an improvement in financial conditions and reduced risk of systemic collapse to forceful public policy intervention, but cautioned that many vulnerabilities remain and complacency must be avoided.
Reinforcing what many local economists have already predicted for New Zealand, the global recovery is likely to be sluggish as “institutions remain weak and credit intermediation impaired.”
While the world economy is stabilising, the report said advanced economies as a group are still projected not to show a sustained pickup in activity until the second half of 2010.
Accordingly, global economic activity is forecast to contract by 1.4% this year and expand by 2.5% next year, and the IMF is projecting GDP in advanced economies will decline by 3.8% in 2009 before growing by 0.6% in 2010 (see table below).
Oh, and don’t expect increases in unemployment to abate within a year either.
The report also recommends that work should begin on exit strategies from financial, monetary and fiscal support policies in order to minimise market uncertainty, and that these strategies should be consistent across countries to avoid opportunities for financial and regulatory arbitrage.
Medium-term policies should help establish a lasting framework of sound financial regulation, sustainable fiscal balances, and price stability.
“We are at a critical stage in emerging from the crisis. We need to guard against slipping backwards, and be ready to do whatever is needed to address any remaining problems in the financial system. This is an indispensable condition for ensuring a sustained economic recovery,” Mr Vinãls said.
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