The IMF just released its April 2010 World Economic Outlook; upgrading world output growth projections for 2010 to 4.2% and 4.3% for 2011 (up by about 1% since the 2009 report). The split shows emerging markets very much as the drivers of global growth with forecasts for 6.3% in 2010 and 6.5% in 2011; while the comparable figures for Advanced economies are 2.3% and 2.4% respectively:
The global recovery has evolved better than expected, but in many economies the strength of the rebound has been moderate given the severity of the recession.
The IMF noted the great rebound in activity indicators; notably in accelerating world trade (a critical aspect for a sustainable recovery - but a risk area as protectionism rhetoric grows). The IMF has picked world trade to grow at 7% in 2010 and 6.1% in 2011 (having contracted -10.7% in 2009):
Global activity has rebounded, as evidenced by accelerating world trade, industrial production, and retail sales. Employment continues to contract in advanced economies but is expanding again in emerging economies, helped by strong potential growth. Industrial confidence has returned to precrisis levels, but household confidence in advanced economies continues to lag, reflecting subdued employment.
The IMF is reasonably relaxed about inflationary pressures, noting that it sees low levels of capacity utilisation, and well-anchored inflation expectations. That said, the IMF view was that inflation in developed economies did not drop-off as drastically as growth did. It also pointed to higher inflation risks in emerging economies (6.2% in 2010 vs 1.5% for advanced economies):
Inflation pressures are projected to remain low, held down by high unemployment rates and excess capacity. Inflation has been higher and more volatile in emerging economies, and inflation pressures could resurface more easily there than in advanced economies.
The IMF also cited repeatedly throughout the report that high unemployment remains a significant risk to a recovery in global demand, and broader economic growth, and noted it expected unemployment (which it also noted could actually be worse than expected) to remain high in advanced economies:
High unemployment poses major social problems. In advanced economies, unemployment is projected to stay close to 8.5% through 2011 and then to decline only slowly. Moreover, the problem is even larger than the statistics suggest. Many of the employed are working shortened hours or in temporary jobs with few benefits. Others would like to find work but have given up searching and are thus no longer recorded as unemployed in the statistics. There is no single measure for broader unemployment or underemployment, but available data suggest that it can often be higher by 25-50% than headline unemployment rates.
Thus the overall message is that the recovery is indeed underway, albeit uneven. However,
activity remains dependent on highly accommodative macroeconomic policies and is subject to downside risks, as room for countercyclical policy maneuvers has sharply diminished and fiscal fragilities have come to the fore.
Thus, the same challenges remain in macroeconomic policy exit strategies (not least of all sustaining the recovery), and the example of Greece shows on the fiscal front that a clear and credible plan for fiscal sustainability is not just 'nice', but necessary.
Disclosure: No positions