Global Economy
World Economic Outlook Update: IMF says global economy will expand by 4½% in 2011
By Finfacts Team
Jan 25, 2011 - 8:45 AM

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World Economic Outlook Update: The IMF (International Monetary Fund) said today in Johannesburg, South Africa, that the global economy will expand by 4½% in 2011 - - an upward revision of about ¼ percentage point relative to the October 2010 World Economic Outlook (WEO).

The Fund said in a mid-term update of its biannual WEO, that the two-speed recovery continues. In advanced economies, activity has moderated less than expected, but growth remains subdued, unemployment is still high, and renewed stresses in the Eurozone periphery are contributing to downside risks. Meanwhile, in many emerging economies, activity remains buoyant, inflation pressures are emerging, and there are now some signs of overheating, driven in part by strong capital inflows.

The IMF says global activity expanded at an annualized rate of just over 3½% in the third quarter of 2010. A slowdown from the 5% growth rate of the second quarter of 2010 was expected, but the third-quarter rate was better than forecast in the October 2010 WEO, owing to stronger-than expected consumption in the United States and Japan.

The Fund says more generally, signs are increasing that private consumption - - which fell sharply during the crisis - - is starting to gain a foothold in major advanced economies. Meanwhile, growth in emerging and developing economies remained robust in the third quarter, buoyed by well entrenched private demand, still-accommodative policy stances, and resurgent capital inflows.

The IMF says that activity in the advanced economies is projected to expand by 2½% during 2011–12, which is still sluggish considering the depth of the 2009 recession and insufficient to make a significant dent in high unemployment rates. Nevertheless, the 2011 growth projection is an upward revision of ¼ percentage point relative to the October 2010 WEO, mostly due to a new fiscal package passed in late 2010 in the United States that is expected to boost economic growth this year by ½%. A package with a similar growth impact passed in Japan is expected to sustain a moderate recovery in 2011. And although growth in the periphery of the Eurozone is marked down for this year, this is offset by an upward revision to growth in Germany, due to stronger domestic demand.

The update says that in both 2011 and 2012, growth in emerging and developing economies is expected to remain buoyant at 6½%, a modest slowdown from the 7% growth registered last year and broadly unchanged from the October 2010 WEO.

Developing Asia continues to grow most rapidly, but other emerging regions are also expected to continue their strong rebound. Notably, growth in sub-Saharan Africa - - projected at 5½% in 2011 and 5¾% in 2012 - - is expected to exceed growth in all other regions except developing Asia. This reflects sustained strength in domestic demand in many of the region’s economies as well as rising global demand for commodities.

The Fund warns that the US fiscal deficit is now projected at 10¾% in 2011 (more than double that in the Eurozone), and gross government debt is projected to exceed 110% of GDP in 2016. The economists say that an absence of a credible, medium-term fiscal strategy would eventually drive up U.S. interest rates, which could prove disruptive for global financial markets and for the world economy.

World Economic Outlook Update

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