IMF outlook: Emerging powers seen as engines of growth

China and other emerging powers are offsetting weakness in the United States and Europe and will likely lift the global economy this year and next.

That's the latest outlook of the International Monetary Fund (IMF), which predicts the world economy will expand 4.8 per cent this year and 4.2 per cent next year.

That would far surpass last year's 0.6 per cent decline, the worst since World War II. The IMF's forecast for worldwide growth this year is 0.2 percentage point more than its previous estimate in July.

The international lending agency predicts the US economy will grow 2.6 per cent this year, below its previous estimate of 3.3 per cent, and 2.3 per cent next year.

The IMF's forecast, released Wednesday, points to lingering weakness in the United States and Europe after the worst recession since the Great Depression.

The agency says the global economy will require a balancing act: Countries with huge trade and budget deficits such as the United States will need to boost exports.

And countries with big trade surpluses such as China must reduce their dependency on exports and boost domestic demand.

A major factor dampening US exports is that China and other emerging nations have been manipulating their currencies to gain trade advantages.

US Treasury Secretary Timothy Geithner on Wednesday stepped up pressure on China to make more progress in moving towards flexible exchange rates.

Appreciation

Geithner said it is particularly important to see appreciation in countries where the currency is significantly undervalued.

Geithner never mentioned China, but his speech at the Brookings Institute was clearly directed at the world's second-largest economy.

China's economy is still only one-third the size of the US economy. But the gap is likely to narrow in the coming years.

The IMF prediction of 2.6 per cent growth for the United States this year is historically weak coming after a recession. It marks a sharp reversal from the 2.6 per cent decline in US activity last year.

That was the steepest drop since 1946. The US forecast is down from a 3.3 per cent projection the IMF made in July.

But the US economy slowed sharply in late spring and summer this year as the European debt crisis shook the confidence of investors and businesses.

The IMF's forecast of 2.3 per cent US growth for 2011 is down from its 3.0 per cent estimate in July.

Growth prospects are even weaker in Europe.

The 16 nations that use the common euro currency will see their economies average 1.7 per cent growth this year and 1.5 per cent next year, the IMF says. Still, both those forecasts are upgrades from July, following a debt crisis that began in Greece and had threatened to widen throughout Europe.

Growth in Japan is projected to be 2.8 per cent in 2010 and 1.5 per cent in 2011. Its 2011 estimate was trimmed because Japan is still struggling to emerge from nearly two decades of anaemic growth.

Combined, advanced economies such as the United States and Europe are forecast to grow 2.7 per cent this year and 2.2 per cent next year.

By contrast, emerging and developing economies, such as those in China, Russia, Eastern Europe and Latin America, are expected to expand 7.1 per cent this year and 6.4 per cent in 2011 - more than double the growth rates of the advanced economies.

Leading the growth surge is China, the world's second-largest economy.

Growth in China

Growth in China is forecast to be 10.5 per cent this year and 9.6 per cent next year.

Brazil's economy is expected to grow 7.5 per cent this year before slowing to 4.1 per cent next year.

The IMF said the recovery from the recession remains vulnerable to threats, including soaring budget deficits in many nations. It says credible plans to cut deficits are urgently needed.

The IMF's latest World Economic Outlook indicates that more than 210 million people across the globe are unemployed. That's an increase of more than 30 million since 2007 before the recession began.

For the global economy to continue growing, the IMF said advanced economies such as the US will need to see stronger spending by consumers and growth in exports.

- AP