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IMF Raises 2010 Growth Forecast, Developing Economies Lead the Way

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William Ide

The International Monetary Fund says the global economy will grow at a faster-than-expected rate this year as it continues to rebound from a crippling financial crisis.  The Washington-based international lending agency says the emerging markets of Brazil, China and India will help lead the global rebound.  

In its latest World Economic Outlook report, the International Monetary Fund forecasts global economic growth of 4.2 percent for this year.  Its forecast for growth in 2011 remained at 4.3 percent, unchanged from its last forecast in January.

IMF chief economist Olivier Blanchard says the world economy is at an important stage of its efforts to rebound from the global financial crisis.

"A global depression has been averted," said Olivier Blanchard. "The world economy is recovering, and recovering better than we had previously thought likely.  This is certainly welcome news."

Blanchard notes that emerging economies are leading the way in helping boost world economic growth.  Asia is forecast to see the strongest growth this year at 8.7 percent.

The International Monetary Fund says many economies have resumed a high rate of growth, but challenges remain.  Among advanced economies, the United States is expected to outperform Europe and Japan, but it will lag behind China and other developing nations.

IMF chief economist Blanchard:

"In the U.S., consumers, who were the drivers of the economy before the crisis are being more prudent," he said. "In Europe, where banks play a central role in financial intermediation, the weak banking sector limits credit supply.  In Japan, deflation has re-appeared, leading to higher interest rates and putting in danger an already weak recovery."

China is expected to grow by 10 percent this year, and India by 8.8 percent.  The U.S. economy is forecast to grow by 3.1 percent.

The International Monetary Fund says growth for the 16 European countries that share the euro currency will be one percent in 2010.

Blanchard says despite the good news, achieving strong sustained and balanced growth for the global economy will not be easy.

"It will require more work, namely fiscal consolidation in advanced countries, exchange rate adjustments, rebalancing of demand across the world, these are the tasks facing policymakers over the next few years," said Blanchard.

Fiscal consolidation refers to the use of policy to reduce government deficits and debt.

The IMF report warned the failure of nations to contain soaring public debt could have severe consequences on the global economy.

Blanchard says the solution to the challenges facing emerging and advanced economies lies in the adjustment of their exchange rates.  He says that as advanced economies work to deal with debt and deficit, which would have a negative impact on growth, they may need to let their currencies depreciate to help increase exports and hence growth.

He says emerging countries need to do the opposite, let their currencies appreciate and reduce exports.  Blanchard says that it is in their interest to do so because global growth will help support the growth of their economies.

"In China, for example, a shift away from exports, towards domestic consumption, a shift that requires both structural measures to decrease savings, and an appreciation of the currency, appears highly desirable," he said.

China has been under increasing pressure from the United States and other countries to let its currency, the yuan, strengthen so global products can be more competitive against Chinese exports.

The new IMF forecast for global economic growth was issued just before a key meeting of global financial leaders this week in Washington.

On Friday, global financial leaders will hold day-long talks with the Group of 20 nations, a bloc that includes the world's richest industrial nations as well developing nations such as Brazil, China, India and Russia.

The talks on Friday, as well as meetings on Saturday and Sunday, are expected to focus on efforts to overhaul financial regulatory systems, rebalance global growth and ways to make the recovery more sustainable.   

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