Wednesday, October 6, 2010
Global economy gaining, US growth slowing: IMF
The global economy will likely strengthen the rest of this year and in 2011 as China and other emerging powers offset weakness in the United States and Europe.That's the latest outlook of the International Monetary Fund, which predicts the world economy will expand 4.8 per cent this year and 4.2 per cent next year. That would far surpass last year's 0.6 per cent decline, the worst since World War II. The IMF's forecast for worldwide growth this year is 0.2 per centage point more than its previous estimate in July.The international lending agency predicts the US economy will grow 2.6 per cent this year, below its previous estimate of 3.3 per cent, and 2.3 per cent next year.The IMF's forecast, released Wednesday, points to lingering weakness in the United States and Europe after the worst recession since the Great Depression.The agency says the global economy will require a balancing act: Countries with huge trade and budget deficits such as the United States will need to boost exports. And countries with big trade surpluses such as China must reduce their dependency on exports and boost domestic demand.The IMF forecast was prepared for the annual fall meetings of the 187-nation IMF and its sister lending organization, the World Bank. Finance officials from the Group of 20, representing the world's richest nations and fast-growing developing countries, are scheduled to hold talks Friday.Obama administration officials said they planned to press other G-20 countries such as China to honor commitments they've made to reduce their huge trade surpluses, which come at the expense of other countries. Such trade imbalances contributed to the global downturn.The prediction of 2.6 per cent growth for the United States this year is historically weak coming after a recession. But it marks a sharp reversal from the 2.6 per cent decline in US activity last year. That was the steepest drop since 1946. The US forecast is down from a 3.3 per cent projection the IMF made in July.But the US economy slowed sharply in late spring and summer this year as the European debt crisis shook the confidence of investors and businesses. The IMF's forecast of 2.3 per cent US growth for 2011 is down from its 3 per cent estimate in July.Growth prospects are even weaker in Europe. The 16 nations that use the common euro currency will see their economies average 1.7 per cent growth this year and 1.5 per cent next year, the IMF says. Still, both those forecasts are upgrades from July, following a debt crisis that began in Greece and had threatened to widen throughout Europe.Growth in Japan is projected to be 2.8 per cent in 2010 and 1.5 per cent in 2011. Its 2011 estimate was trimmed because Japan is still struggling to emerge from nearly two decades of anemic growth.Combined, advanced economies such as the United States and Europe are forecast to grow 2.7 per cent this year and 2.2 per cent next year.By contrast, emerging and developing economies such as those in China, Russia, Eastern Europe and Latin America, are expected to expand 7.1 per cent this year and 6.4 per cent in 2011 — more than double the growth rates of the advanced economies.Leading the growth surge is China, the world's second-largest economy. Growth in China is forecast to be 10.5 per cent this year and 9.6 per cent next year. Brazil's economy is expected to grow 7.5 per cent this year before slowing to 4.1 per cent next year.The IMF said the recovery from the recession remains vulnerable to threats, including soaring budget deficits in many nations. It says credible plans to cut deficits are urgently needed.The IMF's latest World Economic Outlook indicates that more than 210 million people across the globe are unemployed. That's an increase of more than 30 million since 2007 before the recession began.For the global economy to continue growing, the IMF said advanced economies such as the United States will need to see stronger spending by consumers and growth in exports.The administration has intensified its criticism of China over its currency. Washington contends that Beijing must move faster to allow the yuan to rise in value against the dollar. American manufacturers contend that the yuan is undervalued by up to 40 per cent, giving Chinese producers a big price edge over US companies.A senior Treasury Department official told reporters Tuesday that the need to reform currency policies would be a big part of the discussions. The official spoke on condition of anonymity to discuss US positions in advance of the meetings.The House, before adjourning for the midterm elections, approved legislation to impose economic sanctions on countries such as China that are found to have manipulated currencies to gain trade advantages. The Senate is unlikely to approve the measure this year. But House passage might give the administration more leverage with China on the currency issue.Lawmakers are under pressure to act at a time of high unemployment in the United States. More than 8 million people lost their jobs during the last recession, and the unemployment rate remains stuck near double-digit levels.