The global economy is expanding again and financial conditions
have improved significantly, the International Monetary Fund (IMF) has said.
But in its latest World Economic Outlook, the IMF said the “pace of recovery is expected to be slow”.
It added that the recovery is likely to be “insufficient to decrease unemployment for quite some time”.
On Wednesday, the IMF cut its forecast for the amount that banks are likely to lose in bad loans and investments.
The total it expects banks to lose between 2007 and 2010 is now $3.4tn (£2.1tn), down from its previous estimate of $4tn.
This reduction is a direct result of the improved outlook for the global economy.
Separately, the head of the European Central Bank (ECB) said that the 16 countries in the eurozone should withdraw stimulus packages in the next two years.
“From an ECB point of view, it is important to do what is necessary to exit as soon as possible,” Jean-Claude Trichet said at a meeting of EU finance ministers and central bank governors in Gothenburg.
“It is important in our view that it starts as soon as the recovery starts. It is something which is essential for the recovery itself.
“I would say, in our own view, at the latest in 2011.”
Recovery risks
The global recovery is being led by Asia, where economies have “withstood the financial turmoil much better than expected,” the IMF said.
But gains are now being seen in developed economies, where “financial market sentiment and risk appetite have rebounded”, it added.
Despite the improved outlook, however, the fund said there were a number of risks to the recovery.
It cited major government stimulus packages, central bank support and restocking by companies that have run down inventories as three temporary factors that “will diminish during the course of 2010”.
It also highlighted the fact that banks are being forced to hold more cash in reserve, which will limit the amount of credit available “for the remainder of 2009 and into 2010”.
With less money available to companies and individuals to borrow, and therefore invest, demand may be stifled.
Most serious, it concluded, was the fact that “private demand in advanced economies remains very weak”.
Increased growth
The IMF predicts that the US economy will contract by 2.7% in 2009, before growing by 1.5% next year.
The eurozone, it thinks, will shrink by 4.2% this year and grow by 0.3% in 2010.
It has upgraded its forecast for UK economic growth to 0.9% next year, up from a previous estimate of 0.2%. This puts the UK top of Europe’s leading economies for growth in 2010, alongside France.
The German economy, the IMF thinks, will grow 0.3% next year, while the Spanish economy will shrink by 0.7%.
The world’s fastest-growing economy in 2010 will be Singapore, which will expand by 4.1%, closely followed by Taiwan, Slovakia, South Korea and Hong Kong, according to the fund.
BBC