Kevin Lings, chief economist for South African asset manager, STANLIB summarised the key points from the latest IMF's World Economic Outlook (October 2009):
Overall the IMF raised the world growth projection for 2010 by 0.6 percentage points to around 3% (PPP basis) (relative to their forecast in July 2009), but highlighted that a subdued recovery lies ahead.
The global economy appears to be expanding again, pulled up by the strong performance of Asian economies and stabilisation or modest recovery elsewhere. The pace of recovery is slow, and activity remains far below pre-crisis levels. The pickup is being led by a rebound in manufacturing and a turn in the inventory cycle, and there are some signs of gradually stabilising retail sales, returning consumer confidence, and firmer housing markets. World trade is beginning to pick up and commodity prices have staged a comeback. Global activity is forecast to expand by about 3 percent in 2010 (PPP basis), which is well below the rates achieved before the crisis.
The global economy appears to be expanding again, pulled up by the strong performance of Asian economies and stabilisation or modest recovery elsewhere. The pace of recovery is slow, and activity remains far below pre-crisis levels. The pickup is being led by a rebound in manufacturing and a turn in the inventory cycle, and there are some signs of gradually stabilising retail sales, returning consumer confidence, and firmer housing markets. World trade is beginning to pick up and commodity prices have staged a comeback. Global activity is forecast to expand by about 3 percent in 2010 (PPP basis), which is well below the rates achieved before the crisis.
In the advanced economies, unprecedented public intervention has stabilised activity and has even fostered a return to modest growth in several economies. Advanced economies are projected to expand sluggishly through much of 2010, with unemployment continuing to rise until later in the year.
Emerging and developing economies are generally further ahead on the road to recovery, led by a resurgence in Asia. Many countries in emerging Europe have been hit particularly hard by the crisis, and developments in these economies are generally lagging those elsewhere. In emerging economies, real GDP growth is forecast to reach almost 5 percent in 2010, up from 1.7 percent in 2009. The rebound is driven by China, India, and a number of other emerging Asian economies. Other emerging economies are staging modest recoveries, supported by policy stimulus and improving global trade and financial conditions.
Looking ahead, the policy forces that are driving the current rebound will gradually lose strength, and real and financial forces, although gradually building, remain weak. Specifically, fiscal stimulus will diminish and inventory rebuilding will gradually lose its influence. Meanwhile, consumption and investment are gaining strength only slowly, as financial conditions remain tight in many economies.
Downside risks to growth are receding gradually but remain a concern. The main short-term risk is that the recovery will stall. Premature exit from accommodative monetary and fiscal policies seems a significant risk because the policy-induced rebound might be mistaken for the beginning of a strong recovery in private demand. In general, the fragile global economy still seems vulnerable to a range of shocks, including rising oil prices, a virulent return of H1N1 flu, geopolitical events, or resurgent protectionism.
Extending the horizon to the medium term, there are other important risks to sustained recovery, mainly in the major advanced economies. On the financial front, a major concern is that continued public skepticism toward what is perceived as bailouts for the very firms considered responsible for the crisis undercuts public support for financial restructuring, thereby paving the way to a prolonged period of stagnation. On the macroeconomic policy front, the greatest risk revolves around deteriorating fiscal positions, including as a result of measures to support the financial sector.
Current medium-term output projections are much lower than before the crisis, consistent with a permanent loss of potential output. Investment has already fallen sharply, especially in the economies hit by financial and real estate crises. Capital stocks levels are falling. In addition, unemployment rates are expected to remain at high levels over the medium term in a number of advanced economies.
Many economies that have followed export-led growth strategies and have run current account surpluses will need to rely more on domestic demand and imports. This will help offset subdued domestic demand in economies that have typically run current account deficits and have experienced asset price (stock or housing) busts, including the United States, the United Kingdom, parts of the euro area, and many emerging European economies.
In advanced economies, central banks can (with few exceptions) afford to maintain accommodative conditions for an extended period because inflation is likely to remain subdued as long as output gaps remain wide. Moreover, monetary policymakers will need to accommodate the impact of the gradual withdrawal of fiscal support.
The situation is more varied across emerging economies; in a number of these economies it will likely be appropriate to start removing monetary accommodation sooner than in advanced economies. In some economies, warding off risks for new asset price bubbles may call for greater exchange rate flexibility, to allow monetary policy tightening to avoid importing an excessively easy policy stance from the advanced economies.
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