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IMF revises growth figures upward, warns of inflation

The International Monetary Fund on Thursday revised upward its predictions for world economic growth for the remainder of the year, despite a slowdown that is expected to continue into 2009 and mounting inflation concerns.

Growth is predicted to be 4.1% in 2008 down from 5% in 2007, with growth continuing to slow to 3.9% in 2009, the IMF’s World Economic Outlook released in Washington on Thursday said. “The global economy is facing its most difficult set of circumstances in many years,” IMF analyst Simon Johnson said.

The slowdown would be less severe than the IMF predicted in April on greater than anticipated demand in the H1 of the year, revising world growth up 0.4% from the earlier projection. It revised growth in advanced economies upward 0.4% to 1.7% and increased its forecast for emerging and developing economies by 0.2% to 6.9% growth.

In the United States, where economic woes have dominated headlines for months, the IMF said growth would be 0.8% more than the earlier projection to 1.3% for 2008. In April, the IMF had predicted a recession in the United States within the year, but its analysts appeared to shy away from that assessment on Thursday, citing the effectiveness of a government stimulus package that sent checks to taxpayers.

Still, ongoing concerns about the US housing market and turmoil in financial firms remain. Government efforts to shore up mortgage firms Fannie Mae and Freddie Mac “are emblematic of deeper problems in the United States where things have not yet stabilized,” Johnson said. He said he does not foresee two successive quarters of negative economic growth - a traditional definition of a recession - but notes that the US economy is “nearly stalled.”

Developing Asian nations will see growth of 8.4% for the year, after a revision of 0.2%, down from 10% growth in 2007, the IMF predicted. In China, the IMF projected 9.7% growth, down from 11.9% last year, and in India, 8% growth was forecast, down from 9.3% in 2007. In the Euro Zone, growth was revised upward 0.3% to 1.7% for the year. Japan will see growth of 1.5% for the year, up 0.3% from the earlier prediction, and down from 2.1% growth in 2007. Rising inflation driven by food and fuel prices - especially in developing countries - is of growing concern to the IMF and will complicate policy decisions designed to promote growth, it said.

Headline inflation rose 3.5% in May over the year-earlier period in advanced economies, and 8.6% in emerging and developing economies, where food and fuel make up a larger share of spending. The IMF rose its inflation forecast for emerging economies to 9.1% for 2008, and 7.4% in 2009. (m&c.com)