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IMF Predicts Highest Global Economic Growth Since 2000 - 2004-04-21


The International Monetary Fund (IMF) Wednesday released an updated global economic forecast that foresees the most significant output gains since the boom year of 2000.

In its semi-annual forecast the IMF sees a pick-up in growth to 4.6 percent this year. That's nearly two percentage points above the modest three percent growth of 2003. The best performing big economies are China 8.5 percent and the United States 4.6 percent. Continuing its recent trend that benefits from higher oil and gas prices, the Russian economy is projected to grow by six percent while India is advancing to 8.8 percent growth.

The new IMF chief economist, Raghuram Rajan, said that Western Europe continues to be a laggard with only 1.8 percent growth predicted for this year.

"In the euro area I think the issue, things aren't looking that bright so far," he said. "And the latest indicators are that they don't look that good. And if that continues there might be further opportunities for interest rate cuts by the ECB [European Central Bank]."

Concerning China Mr. Rajan is worried that rapid economic growth may be putting too much strain on the weak financial system. He is only lukewarm to the idea that the Chinese currency should rise against the dollar.

"I think the idea that if China adopts a more flexible exchange rate it will solve all China's problems, I think, is misguided," he said. "It will help, but also China has other issues in the financial system that it has to deal with separately. And those are an important part of what it has to do."

The IMF is projecting a 10 percent decline in oil prices in 2005. Oil prices were up 16 percent last year and have risen further this year mainly due to increased demand in China and the United States. The IMF foresees a generalized decline in commodity prices, which have risen sharply over the past 18 months.

Overall, the IMF believes 2005 will be another good year with world growth slowing only slightly to 4.8 percent.

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