IMF says Softer Growth Patch Won’t Last

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http://www.marketwatch.com/story/imf-says-softer-growth-patch-wont-last-2011-06-17?siteid=bulletrss

IMF says Softer Growth Patch Won’t Last

June 17th, 2011 03:28 pm ·

WASHINGTON (MarketWatch) — The global economy is expected to slow in the second quarter but then reaccelerate in the second half of the year, the International Monetary Fund said in its latest update on the global economic outlook.

“The fundamental drivers of growth remain in place,” the IMF said in one of a series of updates to its outlook for the global economy, financial stability and debt reduction. These drivers include accommodative monetary policies, pent-up demand for consumer goods and strong growth in emerging and developing economies.

World economic outlook ACTUAL 2010 forecast

2011 forecast

2012

Global growth 5.1% 4.3% 4.5%

Advanced economies 3% 2.2% 2.6%

United States 2.9% 2.5% 2.7%

Euro zone 1.8% 2.0% 1.7%

United Kingdom 1.3% 1.5% 2.3%

Japan 4.0% -0.7% 2.9%

Emerging economies 7.4% 6.6% 6.4%

China 10.3% 9.6% 9.5%

India 10.4% 8.2% 7.8%

Russia 4% 4.8% 4.5%

Brazil 7.5% 4.1% 3.6%

Crude oil price $79.03 $106.30 $105.25

CPI – advanced 1.6% 2.6% 1.7%

CPI – emerging 6.1% 6.9% 5.6%

Source: International Monetary Fund/conga/story/2011/06/world_economic_outlook.html 152009

The IMF trimmed its projection for global growth in 2011 to 4.3%, down from the April forecast of 4.4%, as it predicts the world economy to advance 4.5% in 2012.

Given the weak first five months of the year, the IMF cut is forecast for U.S. growth to 2.5% from 2.8% previously.

The IMF also trimmed its forecasts for growth in Italy and the United Kingdom this year. The IMF said that Japan would contract by 0.7% this year, compared with the pre-earthquake estimate of a 2.8% growth rate.

Ever cautious, the IMF did say that risks are now tilted toward the downside.

For instance, global growth could falter if the U.S. slowdown lasts longer than expected.

In addition, banks in the richest countries are not out of the woods.

The IMF said that every region had work to do to bolster the prospects for continued expansion

“The global economy has turned the corner from the Great Recession but keeping it going will require a concerted effort to address diverse challenges,” the report said.

The list included mostly well-known items. The U.S. has to enact a plan to contain the federal budget deficit and raise the debt ceiling.

In Europe concrete steps are needed to strengthen supervision and crisis resolution measures.

In emerging economies, tightening of macroeconomic policies needs to continue as real rates remain low.

China must continue to allow its currency to strengthen, the report said.

The IMF said that global financial conditions have become more volatile since late last month given renewed worries about sovereign risks in the euro-area periphery and the weakness in the U.S..

The IMF said that progress to repair the banking system was moving at an ”insufficient pace,” notably in Europe.

“Markets may lose patience and become disorderly if political developments derail momentum on fiscal consolidation and financial reform,” the IMF said.

Budget cutting was proceeding at a “broadly appropriate pace” in many advanced countries, the agency said. The outlook for the U.S. budget deficit this year has improved, making planned cuts in 2012 less abrupt.

Greg Robb is a senior reporter for MarketWatch in Washington