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World economy set for robust growth, IMF says

The world economy is set to grow briskly in 2007-08, heading for a „soft landing” despite this year's stock- market jitters and slower growth in the United States and Europe, the International Monetary Fund said Wednesday.

Global growth will settle at 4.9% both this year and next from a hot 5.4% in 2006, but fast growth in China and India as well as solid US consumer demand should help keep momentum on track, the International Monetary Fund said in its twice-yearly look at the world economy. Clouding the upbeat outlook are increased risks in the world financial system as buoyant stock markets spur leveraged buyouts and risk-taking by investors, the report said. „Although the recent episode of financial market turbulence in February ­ March 2007 appears to be contained in magnitude, it does serve as a healthy reminder of underlying financial risks,” the IMF economists said.

Risks also include deeper-than-expected fallout from the US housing downturn, a new oil-price surge, a rise in protectionism or a sudden unwinding of large financial imbalances between key economies, the report said. But a drop in oil prices since last summer, easing inflation pressures in North America and signs that the US mortgage and housing-market crises are waning mean that the overall outlook is more confident than six months ago, the report said. „The world economy still looks well set for continued robust growth in 2007 and 2008,” the Washington-based IMF said. Commodity-rich countries in Africa, the former Soviet Union, the Middle East and Latin America will likely continue to prosper, with growth in Africa speeding up in 2007 as new oilfields come on stream, the IMF said.

Expansion of the US economy, the world's largest, was forecast at 2.2% this year, rising to 2.8% in 2008. Growth in the 13-country euro zone should slow from 2.6% last year to 2.3% in both 2007 and 2008, with the French economy growing faster than Germany's, the IMF said. Japan's growth should pick up slightly to 2.3% in 2007 and fall back to 1.9% in 2008, the report said. Inflation pressures in the euro zone warrant a further hike in the ECB's interest rates by the summer, while Japan should tighten monetary policy „only gradually,” IMF economists said. Asian economies seem well positioned, partly because the US slowdown - focussed on the domestic housing market - has done little to dampen world demand for electronic goods, the IMF said. „The near-term outlook for growth in the region remains very positive,” the report said.

The torrid expansions in India and China will slow slightly, while Indonesia, Thailand, the Philippines and Malaysia will see growth pick up through 2008, the IMF forecast. However, Asian financial markets are vulnerable to an investor pullout in case of market jitters, and Asian countries should do more to liberalize their services markets, the report said. Backing calls by the US government, the IMF urged China to allow a broad, „more decisive” appreciation of its renminbi currency, especially because other Asian countries such as Thailand and South Korea have seen their currencies rise.

Growth in emerging European economies is projected to slow to 5.5% in 2007 and 5.3% in 2008, reflecting the cooling expansion in Western Europe and belt-tightening policies in Turkey and Hungary, the IMF said. It said the three Baltic republics - Estonia, Latvia and Lithuania - and Slovakia will continue to pace the region's economies. But the recent slowing pace of reform among the area's new European Union members raises concern, the report said.

Latin America's economic expansion was forecast to slide to 4.9% in 2007 and to 4.2% next year in a broad-based slowdown that only Chile and Brazil are likely to escape, though Argentina was pegged for 7.5% growth. The outlook for Africa is „very positive,” buoyed by rising oil production in several countries, strong demand for other commodities, debt relief and a broad trend toward economic reforms, the IMF said. Growth on the continent is expected to pick up to 6.2% this year from 5.5% in 2006, before slowing to 5.8% in 2008, the report said. (news.monstersandcritics.com)