After recession, world economy to grow by 3 percent in 2010: IMF (Lead)

October 1st, 2009 - 1:59 pm ICT by IANS  

By Arun Kumar
Washington, Oct 1 (IANS) As the world economy comes out of a deep global recession, global activity is forecast to expand by about 3 percent in 2010 after contracting by about 1 percent in 2009, according to the International Monetary Fund (IMF) projections.

Though well below the rates achieved before the crisis, these projections in the October 2009 World Economic Outlook (WEO) reflect modest upward revisions to those in the July 2009 WEO Update.

The WEO was released Thursday in Istanbul where the IMF-World Bank group is holding its annual meeting this year.

Advanced economies are projected to expand sluggishly through much of 2010, with unemployment continuing to rise until later in the year, the WEO said with annual growth in 2010 projected to be about 1.25 percent, following a contraction of 3.50 percent in 2009.

The recovery of activity is more clearly evident on a fourth-quarter-over-fourth-quarter basis: from 2009:Q4 to 2010:Q4, real GDP is expected to rise by about 1.75 percent, up from an expansion of about half percent (annualised) during the second half of 2009 and a 2 percent contraction in the first half, it said

In emerging economies, with rebound driven by China, India, and a number of other emerging Asian economies, real GDP growth is forecast to reach almost 5 percent in 2010, up from 1.75 percent in 2009, the WEO said.

Other emerging economies too are staging modest recoveries, supported by policy stimulus and improving global trade and financial conditions, it said. Downside risks to growth are receding gradually but remain a concern.

The main short-term risk is that the recovery will stall, the IMF report said. Premature exit from accommodative monetary and fiscal policies too seems a significant risk because the policy-induced rebound might be mistaken for the beginning of a strong recovery in private demand.

In general, the fragile global economy still seems vulnerable to a range of shocks, including rising oil prices, a virulent return of H1N1 flu, geopolitical events, or resurgent protectionism, the WEO warned.

The recovery is expected to be slow, as financial systems remain impaired, support from public policies will gradually have to be withdrawn, and households in economies that suffered asset price busts will continue to rebuild savings while struggling with high unemployment, the report said.

The key policy requirements remain to restore financial sector health while maintaining supportive macroeconomic policies until the recovery is on a firm footing. However, policymakers need to begin preparing for an orderly unwinding of extraordinary levels of public intervention, the WEO said.

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