IMF Predicts Uneven Stabilization and Sluggish Recovery

The International Monetary Fund released new forecasts for how the global economy will perform next year, but even though predictions were upgraded, recovery is expected to be sluggish.

“The global economy is beginning to pull out of a recession unprecedented in the post–World War II era, but stabilization is uneven and the recovery is expected to be sluggish,” the IMF stated.

IMF Projections for the US: “Industrial production may be close to bottoming out, the inventory cycle is turning, and business and consumer confidence has improved. These developments are consistent with stabilization of output during the second half of 2009, with a gradual recovery emerging in 2010.”

Global GDP is expected to contract by 1.4% in 2009 before growing 2.5% in 2010, according to the forecasts, which were less pessimistic for the U.S. and Japan than forecasts in April. For advanced economies, GDP is expected to decline 3.8% this year and gain a meagre 0.6% in 2010.

In contrast to expectations that GDP in advanced countries will pick up later this year, the IMF said “a sustained pickup in activity” won’t take place until the second half of 2010.

“The good news is that the forces pulling the economy down are decreasing in intensity,” said Olivier Blanchard, the IMF’s chief economist, in a press briefing. “The bad news is that the forces pulling the economy up are still weak. The balance is slowly shifting, and this leads us to predict that, while the world economy is still in recession, the recovery is coming. But it is likely to be a weak recovery.” 

In a separately released update to its Global Financial Stability Report, the IMF said financial conditions have improved due to the massive policy response around the world.

“The unprecedented policy response in both the financial and macroeconomic domains has reduced the risk of systemic collapse and begun to restore market confidence,” said José Vinãls, director of the Fund’s Monetary and Capital Markets Department. 

Looking ahead, the IMF said said economic policy must focus on restoring the health of the financial sector.

“Macroeconomic policies need to stay supportive, while preparing the ground for an orderly unwinding of extraordinary levels of public intervention,” a press release said. 

The IMF also said clear exit strategies for monetary and fiscal policies need to be designed to ease concerns for volatility and induce greater risk appetite.

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