STANLIB > Economic Focus > International Monetary Fund – World Economic Forecast April 2011

International Monetary Fund – World Economic Forecast April 2011

The IMF has released their updated World Economic Outlook document. In summary, the IMF’s view is:

  • The global economic recovery is gaining strength, with world growth projected at 4.4% in 2011 and 4.5% in 2012. This is unchanged compared with the IMF’s forecast in January 2011.

  • Real GDP in advanced economies and emerging and developing economies is expected to expand by around 2.5% and 6.5% respectively. More specifically, the forecast in the US has been revised down from 3.0% in January to 2.8% currently. Similarly the growth rates for Japan and North Africa/Middle East have also been revised lower. In contrast, the growth forecasts for Germany and Russia have been revised up.

  • In advanced economies, weak sovereign balance sheets and still weak real estate markets continue to present major concerns, especially in certain euro area economies. Strengthening the recovery will require keeping interest rates low as long as wage pressures are subdued, inflation expectations are well anchored, and bank credit is sluggish. Public spending needs to be placed on a sustainable medium-term path by implementing fiscal consolidation plans and entitlement reforms, supported by stronger fiscal rules and institutions.

  • The challenge for many emerging and some developing economies is to ensure that the current boom-like conditions do not develop into overheating over the coming year. Inflation pressure is likely to build further as growing production comes up against capacity constraints, with large food and energy price increases raising pressure for higher wages. Appropriate action differs across economies, depending on their cyclical and external conditions. However, a tightening of macroeconomic policies is needed in many emerging markets.

  • Commodity prices have increased more than expected, reflecting a combination of strong demand growth and a number of supply shocks. These increases conjure the specter of 1970s-style stagflation, but they appear unlikely to derail the recovery.

  • Oil prices have shot up because of unrest in the Middle East. The IMF argues that this will have only mild effects on economic activity but, given falling spare oil production capacity, risks are on the downside.

  • The global macroeconomic impact of the recent Japanese earthquake would be limited.


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