The International Monetary Fund (IMF) said on Wednesday that the global recession is expected to end owing mainly to public intervention, but it remains cautiously optimistic about a speedy recovery.
"The global economy is beginning to pull out of a recession unprecedented in the post-World War II era, but stabilization is uneven and the recovery is expected to be sluggish," the IMF said in its updated 2009 World Economic Outlook (WEO) released on Wednesday.
The IMF projected the global output to contract at 1.4 percent in 2009, about 0.1 percentage points lower than projected in the April report, but the growth in 2010 will reach 2.5 percent, a 0.6 percentage points higher than the previous projection.
Growth expectation divided in different regions
According to the IMF, the output of advanced economies was projected to shrink at 3.8 percent in 2009, the same level projected in its April report, but will increase 0.6 percent, a 0.6 percentage points higher than the previous projection.
In the update report with the United States, the center of the financial crisis, the IMF said the U.S. GDP was expected to shrink 2.6 percent in 2009, about 0.2 percentage points higher than projected in the April WEO, the growth in 2010 will reach 0.8 percent, a 0.8 percentage higher than the previous projection.
"In the United States, high-frequency indicators point to a diminishing rate of deterioration, including in the labor and housing markets. Industrial production may be close to bottoming out, the inventory cycle is turning, and business and consumer confidence has improved."
In Japan, following a dismal first quarter, there are signs that output is stabilizing. Improved consumer confidence, progress in inventory adjustment, aggressive fiscal policies, and strong performance by some other Asian economies are expected to lift growth in the coming quarters. The world's second largest economy's GDP is expected to contract 6.0 percent this year and grow 1.7 percent in 2010.
The output in the euro area will contract sharper in 2009, with GDP projection to shrink 4.8 percent, a 0.6 percentage points lower than the expectation in the April's outlook but it will shrink less at 0.3 percent in 2010, a 0.1 percentage point higher than the previous projection.
According to the IMF report, emerging and developing economies are projected to regain growth momentum during the second half of 2009, with China and India remaining the light spots. The output in developing economies are expected to grow 1.5 percent and 4.7 percent in 2009 and 2010 respectively, a 0.1 percentage point lower than projection in 2009 growth, but a 0.7 percentage point higher in 2010 than the April report.
Growth projections in emerging Asia have been revised upward to 5.5 percent in 2009 and 7.0 percent in 2010. The upgrade owes to improved prospects in China and India, in part reflecting substantial macroeconomic stimulus, and a faster-than-expected turnaround in capital flows.
Growth in China was revised upward to increase 7.5 percent and 8.5 percent in 2009 and 2010 respectively; both are one percentage points higher than the IMF's April projections. The output growth in India is expected up to 5.4 percent in 2009 and 6.5 percent in 2010.
Inflation pressures to remain low
As the world economy is gaining more positive signs, more and more economists are worrying about the inflation after the recession. However, the IMF believes that inflation remains a relatively less threatening factor.
The IMF said that inflation pressures have continued to ease with the continued weakness of the global economy. Year-over-year inflation moderated to 1.7 percent in May, down from around 6 percent one year earlier.
In the advanced economies, headline inflation fell below zero percent in May as oil prices remained far below levels one year earlier, despite their recent pickup. Core inflation is still running around 1.5 percent, down from 2 percent one year earlier. Similarly, headline and core inflation in the emerging markets have moderated, falling below 4.5 percent and to around 1 percent in May, respectively.
"Despite upward pressure from recovering commodity prices, global inflation is expected to remain subdued through 2010, held back by significant excess capacity. Risks for sustained deflation are small, as core inflation and inflation expectations in most major economies are still holding in the 1-2 percent range," said the IMF.
Stabilization uneven, strong policy implementation still needed
Although the world economy outlook seems more optimistic, the IMF said that the global recession is not over, and the recovery is still expected to be slow.
There are still risks that threaten the recovery of the global economy, including rising unemployment and a loss of confidence in the stability of the financial sector, public debt sustainability in some countries, falling house prices, and trade restrictions.
"Going forward, the pace of recovery will depend on the balance between opposing forces. The downward drag exerted by the financial shock, the sharp fall of global trade, and the general increase in uncertainty and collapse of confidence is gradually diminishing. However, supportive forces are still weak. Many housing markets have yet to bottom out. Importantly, financial markets remain impaired and bank balance sheets still need to be cleaned and institutions restructured." the report said.
In tackling those risks and uncertainties, the IMF suggested that the main policy priority remains in restoring financial sector health. Macroeconomic policies need to stay supportive, while preparing the ground for an orderly unwinding of extraordinary levels of public intervention.
It said that while policies still have much work to do in dealing with the crisis, there will also be a need to increasingly shift from providing short-term support to laying the foundations for a return to strong medium-run growth. This will depend crucially on fostering stronger potential output growth, particularly in advanced economies, and rebalancing global demand. Financial, monetary, fiscal, and structural policies all have a role to play in this regard.
(Xinhua News Agency July 9, 2009)
