Johannesburg: A package of US tax cuts should give a lift to a global economic recovery that had already begun to gain speed late last year, the IMF said on Tuesday as it revised its world growth forecast higher.
In an updated World Economic Outlook report, the International Monetary Fund (IMF) said the global economy would likely expand 4.4% this year, a touch higher than the 4.2% it forecast in October. It said it expected growth of 4.5% in 2012.
Tax cuts enacted late last year will likely lift growth in the United States by half a percent this year, and a separate stimulative package from Japan would also help sustain the moderate global recovery, the IMF said.
“More generally, signs are increasing that private consumption -- which fell sharply during the crisis -- is starting to gain a foothold in major advanced economies,” it said.
Advanced economies have been a drag on global growth since the financial crisis erupted in 2007.
While they are beginning to offer a bigger contribution, the IMF said those economies still pose the biggest risk to the world recovery. In particular, it warned of downside risks from the debt crisis in Europe and the high debt levels in many other advanced economies.
It said “comprehensive, rapid, and decisive policy actions” were needed to tackle troubles in the euro zone. In a separate report on Tuesday, the IMF called for an increase in the effective size of Europe’s financial rescue fund and rigorous stress-testing of the region’s banks.
The Fund revised up its 2011 growth projection for advanced economies to 2.5% from an October forecast of 2.2%. It said growth would likely remain at 2.5% next year -- a pace it warned was not sufficient to make a dent in high unemployment rates.
The IMF said rich nations needed to keep in place loose monetary policies to support growth. “As long as inflation expectations remain anchored and unemployment stays higher, this is the right policy from a domestic perspective,” it said.
The Fund said the US economy would likely grow 3.0% this year, a sharp upward revision from its 2.3% October forecast. The IMF expects growth in the world’s largest economy to ease slightly to 2.7% in 2012.
For Japan, the IMF said growth was now expected to reach 1.6% this year, an upward revision from October, and 1.8% next year.
It maintained its October forecast for the euro zone at 1.5% and estimated growth would accelerate to 1.7% next year. It upgraded its 2011 growth forecast for Germany to 2.2% from 2.0% due to stronger domestic demand.
Emerging markets out front
The IMF said it expects emerging and developing economies, which include China, India, Brazil and Russia, to keep up their brisk pace of growth, although it noted that inflation pressures were rising in these countries.
It revised up its 2011 growth figure for emerging economies to 6.5% from an October projection of 6.4%, and said it sees similar growth next year.
For China, the IMF maintained its 2011 growth forecast at 9.6% and said growth next year would slow slightly to 9.5%.
The Fund revised up its 2011 forecast for Brazilian growth to 4.5% versus a previous projection of 4.1%. It said Brazil would likely grow 4.1% next year.
The IMF said the surge in private investment flows into emerging market economies would likely remain strong, buoyed by low interest rates in mature markets and a strong investor appetite.
It cited inflation as the key risk for emerging economies, and said tighter monetary policies were needed.
“If policymakers fall behind the curve in responding to nascent overheating pressures and asset price bubbles, macroeconomic policies in key emerging economies could be setting the stage for boom-bust dynamics in real estate and credit markets and, eventually, a hard landing in these economies,” the IMF cautioned.
With emerging economies accounting for almost 40% of global consumption, a slowdown in these economies “would deal a serious blow to the global recovery,” the IMF warned.