IMF raises global growth forecast but warns of downside risks

The International Monetary Fund today upped the 2010 global growth forecast to 4.5 percent even as it warned that a sharp rise in downside risks can hamper the fragile world economic recovery. "World growth is projected at about 4.5 percent in 2010 and 4.25 percent in 2011," according to the Fund's World Economic Outlook Update.

The 2010 growth projection is higher compared to the April forecast of around 4 percent while the 2011 estimate remains unchanged. However, the multilateral lender asserted that "downside risks have risen sharply amid renewed financial turbulence". Against this backdrop, the latest forecast hinge on implementation of policies to rebuild confidence and stability, particularly in the Eurozone area. "Downside risks have risen sharply. In the near-term, the main risk is an escalation of financial stress and contagion, prompted by rising concern over sovereign risks. "Given trade and financial linkages, the ultimate effect could be substantially lower global demand,"the report said. The spiralling debt turmoil in the Eurozone, with its epicentre in Greece, has raised concerns of even derailing the slow global economic recovery.

The Fund pointed out that poorly planned fiscal consolidation measures, uncertainty over regulatory reforms and possibility of renewed weakness in the American property market could impact global growth prospects. "These downside risks to growth in advanced economies also complicate macroeconomic management in some of the larger, fast-growing economies in emerging Asia and Latin America, which face some risk of overheating," it noted. The multilateral lender said that emerging economies should help in re-balancing global demand, by way of structural reforms and even greater exchange rate flexibility.

{ Source: July 8th, 2010/ PTI}