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IMF: World Economic Expansion Likely to Continue


The International Monetary Fund Wednesday released its semi-annual economic forecast, revising upward its prediction of growth for 2006 and 2007.

Global growth is now forecast at 4.9 percent this year, a .6 percent increase from what was predicted six months ago. IMF economists say upward revisions for China, India and Russia account for two-thirds of the increase while prospects for Japan have also improved.

IMF chief economist Raghuram Rajan says these good economic times could provide governments with an opportunity to implement policy reforms whose goal is to assure future success in an increasingly competitive global economy.

"Unfortunately, far too little is being done in far too many places," he said. "Serious policy reform has gone into remission. Instead of facing the implementation deficit squarely, politicians everywhere are aiming at soft targets like the foreigner who supposedly competes unfairly, or the immigrant who works to hard and for too little."

Among the policy reforms that the IMF is promoting are the need for America to cuts its budget and trade deficits, for Europe to liberalize its labor practices, and for China to boost domestic consumption and strengthen its financial system.

The IMF says that while oil priced at $70 dollars a barrel (a doubling in less than two years) could slow growth, it is unlikely to trigger a recession.

On the issue of global imbalances, Mr. Rajan said because of their large surpluses, Asian countries such as China need to revalue their currency. The United States, he said, with a huge trade deficit, will eventually see a decline in the value of the dollar.

"As the U.S. deficit continues to be financed easily, the optimists who think there is nothing to worry about are gaining ground over the pessimists who think an abrupt and costly adjustment is likely," he added. "But the optimists have to be right every day while the pessimists need to be right only once."

The U.S. trade deficit requires $1 billion of external financing every day. Most of this financing comes from dollars held by foreign companies and Asian central banks.

On balance, the IMF is optimistic about the world economy, including in the developing world. It says Mexico and Brazil, the biggest economies in Latin America, are growing by more than three percent while long-depressed sub-Saharan Africa is growing by nearly six percent.