The IMF has just released its mid-year World Economic Outlook, and has upgraded a forecast for the first time in two years. Granted, it expects 2009 to be slightly worse, with global GDP expected to contract 1.4 per cent rather than the 1.3 per cent projected in April. Most of us have already written this year off, so it doesn't carry that much impact.
More importantly is the fact that world GDP (or more precisely GWP) is expected to growth 2.5 per cent in 2010. That is up from the 1.9 per cent growth forecast in April. It also comes on the heels of other upgrades, most recently that of the Wall St Journal, which forecast 2.4 per cent growth for the G8 in June.The exact figures are not as important right now as the increasingly strong evidence of bottoming out processes in play across regions and markets. The IMF believes that the bailouts and stimulus packages have been key to this process, and hence to expected improvements in 2010. However the recovery will continue to be weak into 2011, and could easily be derailed.
The biggest concern is that financial markets continue to be 'impaired'. In April it suggested that global write-downs would end up losing financial institutions more than $4 trillion. It now suggests the figure will be lower, but does not say how low. Because the recovery looks so weak, the fund also wants to emphasise the need to keep the current stimulus policies in place. It has also encouraged countries to have clear exit strategies so as not to roil intenational sovereign funding markets.
It has highlighted the fact the recovery will be led by emerging markets, with the developed nations not having stable recoveries until the second half of 2010. The US will register full year growth, but the Euro zone will register a contraction for the year, with Germany in particular registering -0.6 per cent. It is particularly worried about the large account deficit countries such as the US not having sufficient domestic demand as job losses mount and consumer seek to rebuild savings levels. It is therefore important for surplus countries, particularly China, to continue to build their domestic demand levels.
Selected figures from the IMF World Economic Outlook are shown below.