The International Monetary Fund this month will boost its forecast for global economic growth partly because government efforts to prevent a wider financial crisis were successful, a senior IMF official said.
"The unprecedented scale and scope of the anti-crisis measures taken during the past year – and the unprecedented degree of multilateral policy co-ordination involved in their design and implementation – appear to have succeeded in averting a downturn of historic proportions," John Lipsky, the IMF's first deputy managing director, wrote on the IMF's website yesterday.
The Washington-based IMF in October said it expects global growth of 3.1 per cent this year after a contraction of 1.1 per cent in 2009.
"The improved prospects are evident in economic data, in financial-market performance, and in the marking up of economic forecasts," Lipsky said.
"In fact, somewhat more upbeat expectations no doubt will be reflected in the regular January update of the IMF's World Economic Outlook forecast."
Lipsky urged caution because high unemployment and weak income growth are weighing on spending, limiting growth in advanced economies, he said.
Governments need to "to secure the recovery, by ensuring that policies among the key economies remain appropriately supportive of the expansion, as well as globally consistent", he said.
"Financial conditions have improved, but in many ways they remain far from normal," he said, adding that credit losses are still rising in some industries such as commercial real estate.
In emerging nations, the growth outlook "remains upbeat", especially in Asia, he said.
He warned, however, there were many reasons to be cautious about the economic recovery underway.
"These are not normal times, and the reasons for caution about the outlook remain powerful, pointing to a relatively modest recovery in the advanced economies," he wrote.
In the IMF's last economic forecast update on October 1, the fund declared the global economic recovery had begun and revised up its forecasts for world economic growth to 3.1 per cent in 2010.
Lipsky said the world faced five challenges:
- Securing the recovery by ensuring policies are supportive of growth and are globally consistent.
- Protecting the poor and most vulnerable, and restoring growth in low-income countries.
- Reforming the financial sector to make it more effective and reducing risks that could lead to future crises.
- Restructuring and reforming international financial institutions.
- Rethinking and debating lessons from the crisis to help form a new policy consensus.
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