IMF sees faster-than-expected recovery for Turkey and world
Posted by meb at October 2nd, 2009
The International Monetary Fund (IMF) said on Thursday that the global economy is recovering faster than expected and estimated a 3.7 percent growth rate for Turkey in 2010, after a global recession cause the country’s economy to contract 6.5 percent this year.
The fund said in its latest World Economic Outlook that it expected the inflation rate in the country to stand at 6.2 percent this year before increasing to 6.8 percent in 2010. The report estimated that Turkey’s current account deficit to gross domestic product (GDP) ratio would increase to 3.7 percent in 2010 from 1.9 percent this year.
According to the twice-yearly outlook, which was announced in İstanbul ahead of the upcoming Annual Meetings of the Boards of Governors of the World Bank Group and IMF, the world economy is poised to grow by 3.1 percent in 2010 with much of the recovery driven by emerging economies such as China and India. That is up from the 2.5 percent in the IMF’s previous set of estimates. And for this year, the IMF now projects a 1.1 percent decline in the global GDP instead of the 1.4 percent contraction it predicted in July.
The positive report card was likely to feed a cautious but widespread relief that — despite continuing unemployment woes and halting efforts to improve regulation of financial markets — the downturn is easing and may prove less devastating than initially feared.
Still, the report warned against premature withdrawal of stimulus efforts and said uncertain growth in the developed world could soon put governments in a vise — between keeping their stimulus spending going, or cutting it back to avoid ruining their finances with debt and deficits.
The IMF said economic growth has turned positive — France, Germany and Japan are already officially out of recession — as concerted efforts by governments and central banks around the world have boosted demand and helped ease fears of total collapse of the world’s financial system. Banks have been bailed out, economies stimulated with deficit spending, and interest rates sharply reduced.
“The triggers for this rebound are strong public policies across advanced and emerging economies that, together with measures deployed by the IMF at the international level, have allayed concerns about systemic financial collapse, supported demand, and all but eliminated fears of a global depression,” Olivier Blanchard, the IMF’s economic counselor and Jose Vinals, the fund’s financial controller, said in a joint forward to the new outlook.
Despite a more optimistic scenario, the IMF said growth next year is still way below the levels before the financial crisis exploded around a year ago.
The IMF said the main risk to the world economy was the possibility of weak demand in the advanced economies, which includes the US, Western Europe and Japan. As a result, it warned that governments may be faced with either maintaining their fiscal stimulus packages, which would raise questions about the sustainability of government debt levels, or phasing out those measures — which could prompt a further downturn and more problems in the financial sector.
Banks must back recovery
Regarding the banking sector, the IMF said policymakers have to make sure that markets and banks support economic recovery and that reforms are put in place to prevent a similar crisis in the future.
It also said that achieving sustained healthy growth over the medium term will also depend on rebalancing the pattern of global demand. Specifically, the IMF said countries running massive trade surpluses based on export-led growth strategies will need to find a way to deal with likely subdued domestic demand in import-heavy economies which have experienced stock and housing market busts that reduce their purchasing power.
That effectively means that countries like China, Germany and Japan will have to live with lower consumption levels in the US, which has been living beyond its means on credit and as the relatively weak Chinese yuan, has made the price of imported goods cheap. In general, however, the IMF was more optimistic for both the advanced economies and the developing world.
The report underlined that rapid growth in developing Asian countries, such as China and India, is driving the global economy on its path to recovery, but trade and currency imbalances need to be addressed to make sure a rebound is sustainable.
While the region’s export-oriented economies were battered by the abrupt global downturn, the outlook “improved markedly during the first half of 2009,” the fund said. “Recent developments point to a strengthening of domestic demand and exports, but questions remain about whether the rebound can become a self-sustaining recovery,” the IMF report noted.
The fund raised its growth forecasts for China quite sharply — to expect an 8.5 percent economic expansion this year compared with a 7.5 percent rate estimated in July. It lifted its 2010 forecast by a half percentage point, to 9.0 percent. India is seen growing 5.4 percent this year and 6.4 percent next year. Japan’s economy, where exporters were hit hard by the slump in global demand, is expected to see a 5.4 percent contraction in gross domestic product this year, a slight improvement from previous forecasts, and no growth next year.
European recovery likely to be slow
The IMF report predicted that the 16 countries in the euro zone will face a sluggish recovery from recession over the coming months as their banks still have a way to go in cleaning up their finances.
The report said the euro zone is likely to expand by a weak 0.3 percent in 2009, still an improvement from the previous forecast in July for a 0.3 percent decline. “The modest pace of recovery is consistent with continued housing market pressures in some economies, enduring strains in the largely bank-based financial sector, and a drag from the labor markets,” the IMF said.
The IMF projects Germany, the euro zone’s largest economy, will grow by only 0.3 percent in 2010 following a 5.3 percent contraction in 2009. France is expected to grow by 0.9 percent in 2010 following its more modest 2.4 percent output slide in 2009. It is forecasting that Italy will grow by 0.2 percent in 2010 following a 5.1 percent contraction in 2009.
Outside the euro zone, the IMF is expecting Britain to start growing again in the second half of 2009 as the housing and financial markets stabilize and the weaker pound supports exports.
IMF upgrades outlook for US
The IMF report argued that the US economy will be growing again by year-end, but tight credit conditions for consumers and businesses will hamper the recovery. It raised its forecast for growth next year to 1.5 percent from 0.8 percent. The IMF also issued a warning about US government finances, saying government debt “could become unsustainable” unless measures are taken to restrain deficits, and that US President Barack Obama and Congress should make sure health-care reform does not make deficits worse. Still, stimulus spending by Washington and local governments, along with rock-bottom interest rates from the Federal Reserve, have halted the slide.
source: Today’s Zaman
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