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IMF expects slow recovery from global recession

2009-07-09 04:11:31

By CHRISTOPHER S. RUGABER, AP Economics Writer Christopher S. Rugaber, Ap Economics Writer Wed Jul 8, 11:19 am ET

WASHINGTON The global economy is beginning a sluggish recovery from its worst recession since World War II, the International Monetary Fund said Wednesday.

The IMF increased its estimate for global economic growth in 2010 to 2.5 percent, from an April projection of 1.9 percent. At the same time, it slightly downgraded its forecast for this year to a contraction of 1.4 percent, from 1.3 percent.

"The global economy is still in recession, but we're inching towards the recovery," said Olivier Blanchard, director of the IMF's research department. "It's much too early" to cut back on government and central bank efforts to stimulate growth, he said.

Even growth of 2.5 percent won't be enough to keep global unemployment from growing next year, he added.

Financial conditions have improved faster than the IMF expected when it made its previous global forecast in April, the fund said, largely due to government support for banks and other financial companies.

Much of the global recovery will be driven by emerging economies such as China and India, the IMF said. China's economy is expected to grow by 8.5 percent in 2010, a full point higher than previously forecast. India is expected to grow 6.5 percent next year, 0.9 percentage points higher that the previous forecast.

Advanced economies such as the United States, Europe and Japan, meanwhile, aren't expected to show sustained growth until the second half of next year, the IMF said.

Central banks that still have room to cut interest rates should do so, the IMF said, and governments should continue to stimulate their economies through 2010 with measures such as greater spending or tax cuts.

At a news conference, Blanchard declined to comment specifically on whether the Obama administration should consider a second stimulus package, as some members of Congress are beginning to advocate.

But he said consumer demand could "be very weak for longer than we anticipate," in which case government stimulus should continue.

At the same time, the United States and other advanced economies should take steps to limit future government spending on programs such as health care and retirement security, he said, to reassure financial markets.

The IMF expects the U.S. economy to shrink by 2.6 percent this year, a slight improvement from its earlier estimate of a 2.8 percent decline and in line with many private forecasts.

The U.S. will grow 0.8 percent in 2010, the IMF said, up from its expectation in April of no growth.

Separately, President Barack Obama and group of world leaders meeting in Italy agreed that the global economy is too unstable to begin rolling back massive fiscal stimulus plans, according to a draft statement obtained by The Associated Press.

The IMF provides loans and other assistance to troubled countries and has 186 member nations. It saw its influence decline earlier this decade as developing country economies boomed due to higher oil and other commodity prices.

But the worldwide recession has caused countries in Eastern Europe and elsewhere to turn to the fund for loans to support their crippled economies.

Last month, at the behest of the Obama administration, Congress agreed to set aside $5 billion to secure a $108 billion U.S. line of credit for the IMF.