Wednesday, April 20, 2011

IMF Releases World Economic Outlook

FT: IMF Remains Upbeat On Global Economy
WSJ: IMF Says Global Economic Growth to Slow
Forbes: IMF: Turmoil Shouldn't Derail Economic Recovery

The International Monetary Fund (IMF) remains optimistic that the global economic recovery will continue. In its semiannual World Economic Outlook (WEO), which was released last week, the International Monetary Fund (IMF) projected that the combined gross domestic product (GDP) of all countries in the world will grow by 4.4% by the end of 2011. The 4.4% projected growth rate is testament to the resilience of an economic recovery that has been beset with numerous disruptions, ranging from the uprisings in the Middle East to sovereign debt issues in Europe.

However, the recovery is not a perfect one, with uneven growth taking place between the developed countries and the developing countries. Developed nations continue to grow at a slower pace than developing countries. According to the IMF, the GDP of developed economies is expected to grow by only 2.4% in 2011, whereas developing countries are expected to grow by 6.5%. The dichotomy in growth rates raises its own set of concerns. One such concern, and one that has been ongoing for some time, pertains to large capital flows. Because of their higher economic growth rates, developing nations continue to attract excessive amounts of capital, which can pose serious economic risks for those countries. Among other things, large capital inflows can be harmful to a country because they can cause rapid appreciation in the target nation’s currency, which tends to hurt that nation’s exporting industries by making exported goods relatively more expensive for its trading partners to buy. In addition, the investment of large capital inflows in a nation’s economy can accelerate economic growth, which can lead to high rates of inflation.

The IMF’s report also cautioned that, although the chances of a double-dip recession across the world are slim, there are still threats that could derail the economic recovery. In particular, the IMF warned about the problems that could arise if heavily indebted nations did not address their fiscal problems in a timely manner. Nations such as Portugal, Spain, and Greece continue to struggle to control their debt levels, which has dampened economic growth in those countries. The IMF also warned that increasing costs in commodities, especially oil, could likewise threaten the recovery. High oil prices were seen as a contributing factor to the severity of the recent recession, when the price of oil had risen to $150 per barrel.

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