According to the IMF, the world economy expanded at an annualised rate of over 5% (PPP basis) during the first quarter of 2010. This was better than what was expected in the April 2010 World Economic Outlook, mostly due to robust growth in Asia. Consequently, world growth is now projected at about 4.6% in 2010 and 4.3% in 2011 (PPP basis). Relative to the April projections this represents an upward revision of 0.4 percentage points for 2010, reflecting stronger activity during the first half of the year. The forecast for 2011 is unchanged, although the growth rates for a number of the major economies have been revised down for 2011. These include the Euro-area (especially Spain and France), Japan, UK, Canada, and China. These downward revisions were offset by upward revisions to the US, Russia, and Brazil. (see chart attached).
Growth rates in the major economies have clearly become more uneven, making policy co-ordination at the G20 level less practical. Emerging economies are still expected to handsomely out-perform developed economies.
Despite some of upward revisions to growth the IMF highlighted that downside risks have risen sharply given the renewed financial turbulence, especially in Europe, as concerns over sovereign risk spilled over to banking sectors. In this context, the new forecasts hinge on the implementation of policies to rebuild confidence and stability, particularly in the euro area.
In terms of inflation the IMF is of the opinion that inflationary pressures will remain subdued in advanced economies. The still-low levels of capacity utilisation and well anchored inflation expectations should contain inflation pressures in advanced economies, where headline inflation is expected to remain around 1.25% to 1.5% in 2010 and 2011. In a number of advanced economies, the risks of deflation remain pertinent in light of the relatively weak outlook for growth and the persistence of considerable economic slack.
In contrast, in emerging and developing economies, inflation is expected to edge up to 6.25% in 2010 before subsiding to 5% in 2011.
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