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April 16, 2013

IMF: Global Economic Prospects Improve But Recovery Is 'Bumpy' for Some

by Mil Arcega

The International Monetary Fund has cut its outlook for global economic growth, saying the recovery is likely to be uneven. The global lending organization predicts overall growth will average 3.3 percent this year - down from its earlier forecast of 3.5 percent.  The revised outlook comes as member nations gather in Washington for the annual IMF-World Bank Meetings. 

The rise of emerging economies, a stagnant Europe and the plight of the world's poor takes center stage as international and financial policy leaders meet in Washington.  

While economic growth continues at a healthy pace in developing nations, advanced economies are facing a bumpy road to recovery, says IMF Chief Economist Olivier Blanchard.

"I think the main challenge is still very much, in Europe," said Blanchard. "The U.S. is doing better, emerging markets are doing fairly well,  Europe is still the issue."

The IMF says ongoing debt problems in the region and the recent banking crisis in Cyprus are likely to keep the 17-nation eurozone in a mild recession until at least next year.

In contrast, China is forecast to grow eight percent this year with developing economies following close behind. Blanchard says that doesn't mean emerging economies are immune, especially those that depend on exports.

"The main challenge for them is to deal with what's happening in advanced countries," he said. "And what this means is fluctuations in trade, capital markets - very volatile, capital flows coming to them.  They basically have to handle the capital flows, they have to maintain activity, avoid overheating."

For the world's largest economy, the outlook is for a slow but steady recovery.
Despite government spending cuts in the U.S. earlier this year, Blanchard says several factors should lead to stronger growth in 2014.

"The first one is very strong monetary policy, which makes the [interest] rates very low," said Blanchard. "The second is a banking system which is not yet in perfect shape but is much stronger than it used to be.  And then the third is this thing economists call, pent-up demand."

Despite what he calls a three-speed global recovery,  Blanchard says the world's economy is only as strong as its weakest link.
 
Later in the week - the World Bank addresses one of the biggest challenges to global growth - unemployment.