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| [PHOTO: UNifeed] |
Washington: Global growth will strengthen gradually in 2013, as the
constraints on worldwide economic activity will start to taper off this year,
the International Monetary Fund said in its World Economic Outlook Update,
released Wednesday.
Policy actions have lowered the risks of a severe crisis in
the euro area, the report noted. Japan's stimulus plans will help boost growth
in the near term, pulling the country out of a short-lived recession. Effective
policies have also helped support a modest growth pickup in some emerging
market and developing economies. And recovery in the United States remains
broadly on track. Global growth is projected to strengthen slightly, to 3.5
percent this year from 3.2 percent in 2012—a downward revision of just 0.1
percentage point compared with its last October 2012 report.
If crisis risks do not materialize and financial conditions
continue to improve, global growth could even be stronger than forecast, the
report said. But risks remain significant, including prolonged stagnation in
the euro area and excessive short-term fiscal tightening in the United States.
With the outlook remaining fragile, the report stressed the
need for action to bolster the likelihood of recovery.
The IMF downgraded its near-term forecast for the euro area,
with the region now expected to contract slightly in 2013. The report noted
that the euro area continues to pose a large downside risk to the global
outlook. While a sharp crisis has become less likely, the risk of prolonged
stagnation in the euro area would rise if the momentum for reform is not
maintained, the IMF said.
"Is Europe on the mend?
I think the answer is yes and no.
If you look at institutional progress, it's quite impressive. We're not in the same place as we were last
year. The European construction is
coming into play. It's painful. It's tough. Many negotiations. But much progress. No question," Olivier Blanchard, Chief
Economist of the IMF, said.
The report observed that even though policy actions have
reduced risks and improved financial conditions for governments and banks in
the periphery economies, those had not yet translated into improved borrowing
conditions for the private sector. Continuing uncertainty about the ultimate
resolution of the global financial crisis, despite continued progress in policy
reforms, could also dampen the region's prospects.
"There is almost no growth in the core. There is negative growth in the
periphery. That's what we're
predicting. Something has to happen to
start growth. One can hope that the
first two elements, the institutional progress, financial improvements, will
lead to improvements, but we haven't seen it yet," Blanchard said.
The IMF forecasts growth of 2 percent in the United States
this year, broadly unchanged from the October 2012 WEO. A supportive financial
market environment and the turnaround in the housing market will support consumption
growth.
For the United States, the IMF stressed that the priority is
to avoid excessive budget tightening in the short term, promptly raise the debt
ceiling, and agree on a credible plan to cut debt levels over the next 7-10
years, focused on entitlement and tax reform. Blanchard said that the measures
agreed by the Congress for 2013 seem
appropriate.
"We think there will be between 1 and 1-1/2 percent of
fiscal consolidation which seems about right.
What is true is that it hasn't solved the main problem which is the
medium run fiscal consolidation. That
has to happen," Blanchard said.
The near-term outlook for Japan is also unchanged despite
that country's slipping into recession, because the stimulus package and
further monetary easing will boost growth. The report also emphasized the
importance of a credible debt strategy-cutting strategy in Japan for the next
several years. Without it, the IMF cautioned that the stimulus-induced recovery
could prove short lived, and the debt outlook significantly worse.
Emerging market and developing economies are expected to
grow by 5.5 percent this year, as predicted in the October 2012 report. For
these economies, the report underscored the need to rebuild policy room for
manoeuvre. It noted that the appropriate pace of rebuilding must balance
external risks against risks of rising domestic imbalances.
"In general our forecasts are better for 2013 than for
2012, and the main example is Brazil which grew at 1 percent in 2012 which we
think they'll grow at about 3.5 percent in 2013. For the other countries, China and India are
slightly higher than last year. So this
is good. It's not the rates that we saw
before the crisis, but these rates are long gone. These countries will have lower growth than
they had," Blanchard said. -UNifeed