The International Monetary Fund said Monday that the global economic recovery not only is continuing, but it is also strengthening. But, economists caution that unemployment and commodity prices remain high.
IMF Chief Economist Olivier Blanchard said world economic growth is projected to be about 4.5 percent this year and next, which he characterized as a "fairly high" growth rate.
Although that news is good news, Blanchard told reporters at IMF headquarters in Washington that the latest forecast shows that the growth rate varies for emerging and advanced economies. "If you look at the details, you find that for advanced economies, we forecast only 2.5 percent for each of the two years. And for the emerging and developing countries, we forecast 6.5 percent for each of the next two years," he said.
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Blanchard noted a new concern is commodity prices, which have risen more than expected. He said rising food prices pose more of a problem in emerging countries, where the credibility of central banks can be weak.
"So in these countries, they have to be more careful. And it could be that inflation will be a bit higher for some time. But as our forecast indicates, we do not expect this to have a major adverse affect on growth," he said.
High commodity prices can pose a threat to developing countries, even when those prices do not derail economic growth. Soaring costs can fuel social tensions. High commodity prices played a role in this year's political unrest in the Middle East and North Africa.
Blanchard said low interest rates make fiscal adjustment much easier in developing nations. He said exports have largely recovered, and declines in foreign demand have generally been balanced out by increases in domestic demand. Still, he said, the global recovery is unbalanced. "In most advanced economies, output is still far below potential. Unemployment is high, and low growth implies that it will remain so for many years to come," he said.
Blanchard added that the source of low growth pre-dates the recent international financial crisis. He pointed to the depressed housing market that has led to low housing investment in many countries.
Blanchard said advanced economies have only partly heeded IMF advice to be more transparent about the risks on bank balance sheets, and to revise financial regulation and supervision.
The IMF's chief economist also said it will take a long time to gauge the success of efforts to improve the faltering economies in advanced countries such as Greece, Ireland and Portugal.
He added that the financial crisis left no lasting wounds on emerging market economies.