IMF raises 2010 world GDP forecast, flags Europe risks
By James Pomfret and Kelvin Soh
HONG KONG (Reuters) - The International Monetary Fund upgraded its 2010 global growth forecast on Thursday, citing robust expansion in Asia and renewed U.S. private demand, but warned the euro area’s debt crisis posed a big risk to recovery.
The IMF said the euro zone’s sovereign financing problems and resulting financial market turbulence were significant challenges, especially with the web of financial and trade links connecting Europe to the world. However, a double-dip world recession was highly unlikely.
The fund raised its 2010 global output forecast to 4.6 percent from 4.2 percent in April’s review of the global economy, but kept its 2011 view unchanged at 4.3 percent.
The world economy shrank 0.6 percent in 2009 as a result of the global financial crisis.
“What has happened in Europe is likely to slow down the path to recovery relative to what could have happened, but I think the chances of a double dip are very small, as you know we’re forecasting fairly strong growth for the world economy this year,” Olivier Blanchard, the IMF’s chief economist, said at a briefing in Hong Kong for the organisation’s latest World Economic Outlook and Global Financial Stability reports.
It was the first time the IMF updated these reports from Hong Kong.
The euro fell 8 percent in the second quarter of 2010, the largest quarterly decline since the first quarter of 2009, on fears that some European countries in the currency group may not be able to dig themselves out of their deep debt holes.
While uncertainty about bank regulation has added to investor concerns, the IMF focused the majority of both reports on the implications of the euro zone sovereign crisis.
In the news briefing, Blanchard said the European bank stress test disclosures due on July 23 were an important step toward transparency but underscored that countries must return to a sustainable level of fiscal spending.
Under one scenario — assuming shocks to the global financial system resulting from Europe’s debt problems are as severe as those experienced in the wake of Lehman Brothers’ failure in 2008 — world GDP growth in 2011 would be reduced by 1.5 percentage points, the IMF said.
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(Writing by Kevin Plumberg; Editing by Kazunori Takada)
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