The world economy is in better shape than projected earlier this year, largely because of emerging and developing economies, the International Monetary Fund reported Thursday, dpa reported.
But governments of advanced economies still must walk a precarious tightrope between bail-outs and deficits, according to a revised version of the IMF's World Economic Outlook.
The IMF predicted global growth of 4.6 per cent, up slightly from the 4.2 per cent projected in April and considerably higher than the 3.9 per cent it expected in January. Global projections for 2011 remained steady at 4.3 per cent.
Strong performances in Asia and Latin America drove the upgraded expectations for 2010, the Washington-based IMF said in the report released in Hong Kong. Leading the way are China, projected to grow 10.5 per cent; India at 9.4 per cent; and Brazil at 7.1 per cent.
Emerging and developing economies were altogether expected to grow 6.8 per cent this year, a half-percentage-point rise over the previous IMF projection. Growth prospects also were favourable for many developing countries in sub-Saharan Africa and for commodity producers in all regions, the IMF said.
Commenting on the revision, Olivier Blanchard, the IMF's chief economist said Thursday: "If you look at the figures from the last three months of activity, they have been rather good and better than expected.
"But at the same time there are clouds. The European tensions on the fiscal side, the solvency of banks are creating uncertainties, increasing risk aversion, decreasing bank lending, so the net effect is a small adjustment."
The IMF assessment of the US economy released later Thursday projected growth of 3.3 per cent for 2010 - higher than previously expected. The increase is due to a stronger than anticipated recovery from the recession. The IMF predicted in April growth of 3.1 per cent.
The IMF attributed the higher expectations to a strong response by the US government, including the massive economic stimulus plan and the financial reform plan to better regulate banking practices.
"While still modest by historical standards, the recovery has proved strong than we had earlier expected," the IMF said.
Blanchard said the world was unlikely to see a double-dip recession but warned that uncertainties in parts of the eurozone, such as Greece, had the potential to spread, posing difficulties for both financial stability and the economic outlook.
"While we predict the recovery will continue, it is clear that downside risks have risen sharply," he said.
His warning was echoed by the IMF's financial counsellor Jose Vinals, who called for decisive policy action to address the eroded confidence in financial markets caused by high public deficit in some eurozone countries.
The report said its upbeat forecast depended in part on the eurozone rebuilding "confidence and stability" after the financial uncertainties of recent months.
Growth projections for the eurozone remained unchanged for 2010 at 1 per cent. They, however, dropped 0.2 percentage points to 1.3 per cent for 2011.
Still, the signs remained strong that the world economy has recovered better than expected from its deepest recession in six decades, in large part because of strong government investments in advanced economies.
Echoing concerns at June's Group of 20 (G20) summit of the world's largest developed and developing economies, the IMF warned against "overly severe" government spending cuts as countries try to reduce huge deficits caused by their economic stimulus measures.
There are also risks in "uncertainty about regulatory reforms and their potential impact on bank lending" and from possible "renewed weakness in the US property market," the IMF said.
The IMF even adopted a phrase from the G20 summit, saying that "growth-friendly," medium-term fiscal consolidation plans were "urgently needed."
"Most advanced economies do not need to tighten before 2011 because tightening sooner could undermine the fledgling recovery, but they should not add further stimulus," the IMF advised.
It suggested that fiscal cutbacks for 2011 corresponding to about 1.25 per cent of gross domestic product were "broadly appropriate."
The IMF, however, warned that the fast-growing economies now driving global growth should "start to tighten now" to avoid overheating and inflation. dpa pr hp ls cd mm aw Authors: Pat Reber, Hazel Parry