“Our textile exports amounted to $15 billion in 2010 and organic textile exports reached $60 million. Turkey exports organic textile products to more than 30 countries. The world organic textile market reached $6.8 billion in 2010. We want to increase our share in this market in the coming years,” said Aegean Clothing Manufacturers’ Association, or EGSD, chairman Emre Kızılgüneşler at the event’s opening remarks. Turkey was the world’s fourth largest exporter of textiles, he said.

Organized by EGSD, the Organic Fashion İzmir, or OFI, started Thursday at İzmir’s Swiss Hotel Grand Efes 16.

Worldwide famous companies such as Adidas, H&M, Puma, Otto, Nike, Marks&Spencer, Nike and GAP, and textile firms from Germany, Belgium, Denmark, France, Spain, Poland, the Netherlands, the United Kingdom and Jordan are participating in the trade show.

On the sidelines of the fair, a seminar on “Sustainable Business Opportunities for the Turkish Textile Industry” was held with representatives from leading textiles companies.

The fair ends Saturday.

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The three-day program will provide plenty of time for social networking, acquiring new contacts and discussing business with potential partners and clients.

Organized by the Turkish Embassy in London and the European Bank for Reconstruction and Development, the Turkish Investment Summit will provide an in-depth look into the global and domestic outlook for Turkey, including a spotlight on European Union accession.

Other topics discussed during the summit, which will also be attended by Turkish Finance Minister Mehmet Şimşek, are maximizing Turkey’s energy potential with a special focus on renewable energy sources, a review of Turkey’s best investment opportunities, an in-depth look at real estate; infrastructure; and banking, finance and private equity. A focus day on agriculture, food and beverage and retail grocery will also be included.

Varel Freeman, EBRD first vice president; Alpaslan Korkman, chairman of the Investment Support and Promotion Agency of Turkey; Tevfik Aksoy, an economist at Morgan Stanley in London and Bahadır Kaleağası, of Turkish Industrialists’ And Businessmen’s Association’s International Coordinator and EU Representative are also among the key speakers of the summit.
source: Hurriyet daily news

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Strauss-Kahn, who is currently in İstanbul to attend the 2009 Annual Meetings of the World Bank Group and the International Monetary Fund, noted that he expected the Turkish economy to recover rapidly from the ongoing global economic crisis, saying that the Turkish economy has made great progress thanks to reforms previously implemented in the financial sector. As a member of the G-20, which forms the backbone of the global economy, he said, Turkey is not only one of the leading economies of the world, but also a dynamic member of the IMF.

According to the fund’s latest World Economic Outlook, released last week, Turkey’s economy is expected to grow 3.7 percent in 2010, after a global recession caused the country’s economy to contract an estimated 6.5 percent this year. The inflation rate in the country is expected 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 from 1.9 percent this year to 3.7 percent in 2010. Furthermore, Turkey’s quota in the IMF is expected to increase to more than 1 percent. Analysts note that the Turkish economy will be the fastest growing in Europe in 2010.

Speaking at a conference yesterday on the sidelines of the IMF-World Bank meetings, Professor Nouriel Roubini, a well-known economist, said macroeconomic and financial indicators show that the Turkish economy has been strong in the face of the crisis. He stated that a deal with the IMF would benefit Turkey in terms of the psychological influence it would have on investors and the market, even though there is no technical necessity for such a deal. Meanwhile multibillionaire investor George Soros stated that investments should continue in order to encourage recovery from the crisis.
source: Todays Zaman

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The collapse in European Union demand coupled with receding foreign capital inflows makes a standby agreement with the International Monetary Fund desirable for Turkey, according to New York University Professor Nouriel Roubini.

Roubini, who predicted the crippling financial crisis as early as 2006, told a crowded audience in Istanbul that a global recovery will probably be U-shaped – slow and with low growth rates for years. Speaking at an İş Investment-sponsored event Friday evening, the economist, dubbed “Dr. Doom,” said unprecedented central bank interventions helped mitigate the “systemic risk” to the world economy but that downside risks remain.

“The Turkish economy was fundamentally sound in the eve of the crisis,” he said. “But then the contagion came, resulting in a collapse in European Union demand [for Turkish goods]. The corporate sector halted capital expenditure investments. Turkey is a very open economy and its recovery depends on the recovery of the eurozone.”

Despite this, Turkey should continue macro-structural reforms and “go back to a sound fiscal framework,” Roubini said, adding that there might be some questions about whether the government’s recently announced medium-term economic program would be enough.

Under these circumstances, a deal with the IMF would be “positive for investor sentiment,” he said. “Technically, there is no need for such a deal. But it would signal that a robust policy is in place.”

The structural reforms Roubini advocated included reducing taxes, reigning in the unregistered economy, providing labor flexibility and reforming the social security system. “Your recovery demands on two things,” he said. “Sound domestic policy and good luck.”

Instead of just waiting for a eurozone recovery, Turkey should diversify its exports and head toward the markets in the Middle East, Central Asia and north Africa, Roubini added. “I am moderately optimistic on Turkey,” he said.

Shape of the recovery

Reflecting on the U.S. economy, the Istanbul-born economist predicted a U-shaped recovery. A double-dip recession, namely a W-shaped one, is “not my main scenario, but downside risks to that end remain,” he said. If the recovery would be “anemic,” the losses stemming from commercial real estate, credit cards, auto loans and student loans would be much higher than the $3.4 trillion predicted recently by the IMF, he said.

An exit from the current stimulus policy would be “very difficult,” as the massive rally in all asset classes since March clouds predictions, according to the renowned professor. “How much of this [rally] is driven by fundamentals and how much of it comes from [excessive] liquidity?” he asked, recalling that the fiscal easing by policy makers amounts to a massive $10 trillion. “Japan exited too soon in 1998 and had a double-dip recession.”

The current rally might end in a “correction,” he said. “Assuming a weak recovery, flow of macroeconomic news would be worse than expected. In U-shaped recoveries, surprises are negative rather than positive.”

Weak consumer demand

Recalling that official unemployment in the U.S. has reached 9.8 percent while real unemployment is at 16.8 percent, Roubini said this is a key reason why growth would be “well below potential” for the next few years. It is not only job losses that slash consuming power of U.S. citizens, he said, recalling cuts in wages and hours worked in many workplaces.

Roubini named other reasons for anemic growth as weakness in credit growth, the painful debt structuring in the corporate sector that hampers expansion, a large budget deficit that would hit private demand and a large current account deficit.

“Places such as the U.S., Britain, the Baltics and Dubai ran large current account deficits,” he said. “While countries such as Japan, Germany and China ran large current account surpluses. China was the producer of last resort while the U.S. was the consumer of last resort. The glut of capacity in the U.S. economy and weak demand will also result in a fall in global aggregate demand.”

Roubini was more bullish on emerging markets. “They don’t have financial leverage and liabilities,” he said. “They have cleaned up their financial systems [before]. Their potential growth rate is much higher, and they will recover at a reasonable rate next year.”

But these are not “engines of global growth,” he added. “China’s total gross domestic product is at $3 trillion, a fifth of the U.S. GDP. A total of 2.2 billion ‘Chindian’ citizens spend $1.6 trillion annually, while 300 million U.S. citizens spend $10 trillion.”
source: Hurriyet daily news

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“We’ve broken the fall of the financial crisis,” Bloomberg quoted Zoellick as saying at a news conference in Istanbul on Friday. Still, 2009 “will continue to be a difficult year” and “you’ll have a slow recovery,” he said.

“There are potential challenges for Turkey’s recovery,” he said. “We are expecting a slow recovery for Turkey. The biggest challenge for Turkey might be protectionism.”

The medium-term economic program announced last month is “sound,” Zoellick said. “Turkey has the growth potential with its dynamic youth, but the biggest problem is unemployment.”

The World Bank needs a capital increase of as much as $11.1 billion, according to a report prepared by the bank’s staff. Zoellick said Sept. 29 he hoped that the bank’s shareholders, who will discuss a possible plan in Istanbul, could make a decision on additional resources by April.

The increase would range between $2.8 billion and $8.7 billion for the International Bank for Reconstruction and Development, which lends to countries, and between $1.8 billion and $2.4 billion for the International Financial Corp., which lends to companies. The total amount needed will depend on whether the recession lingers and the World Bank raises fees.

“Fortunately, we came into this crisis very well capitalized,” Zoellick said Friday, adding that IBRD lending was approximately $33 billion in the fiscal year ended June 30. That was about three times as much as the previous year, and the current fiscal year is likely to top $40 billion, he said.

The staff report estimates that the IBRD’s commitments will likely reach $136 billion in the period from fiscal 2009 to 2012. Zoellick said the IFC “also faces a capital constraint.” Overall, “that leaves the potential for a general capital increase,” he said.
source: Hurriyet daily news

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“We discussed with [Economy Minister Ali] Babacan that it would be inappropriate to discuss [a new standby agreement] during the meetings,” he said, noting that negotiations would resume after the summit. He said they would use the annual meetings to hold multilateral meetings and work out the larger issues of the day and not use them for bilateral meetings.

Strauss-Kahn also challenged the common belief that the IMF was actively pursuing Turkey for an agreement. “We help countries that want our help,” he said, adding that “the IMF is not a bank; we are not looking for customers.”

Separately, Turkish Prime Minister Recep Tayyip Erdoğan reiterated that a new loan agreement with the fund was not essential. Erdoğan said loan talks with the IMF will continue and that the next round of talks would be decisive. He emphasized that the Turkish economy is strong enough to do without funds from the IMF.
Not out of the woods yet

While an overall mood of caution could be detected at the annual meetings of the World Bank and the IMF in İstanbul yesterday, Strauss-Kahn warned that although there were promising signs of recovery and cooperation, much work remained to be done in order to ensure the cooperation stayed on track and that the IMF could fulfill its function as a lender of last resort.

Although Strauss-Kahn expressed relief that the G-20 summit in Pittsburg had allayed his greatest fears — now that the worst of the global economic crisis had passed — that the global consensus, coordination and cooperation that had proved essential in thwarting a 1930s-like Great Depression would dissipate, there was still a risk that the consensus could evaporate as domestic political issues begin to pull on politicians.

“I was a bit worried that after the crisis … we would have the consensus vanishing,” he told members of the press. “I understand from others there are domestic issues” that could have pulled politicians in other directions, but it didn’t happen. “Pittsburg showed the strong will of leaders to use the G-20 for cooperation.”

At the G-20 meeting in Pittsburgh leaders committed to working more closely together to not only address the effects of the financial crisis but also to look at ways in which to avoid a repeat of the worst crisis since the Great Depression and of empowering the IMF to assume the role for which it was intended — acting as a lender of last resort, monitoring the world’s financial health and making policy recommendations.

Describing the İstanbul summit as “historic,” he said that the he was hopeful that the summit would be used as a means to implement and thrash out what was decided at Pittsburgh and define the “post-crisis world.”

Reiterating that loss of momentum was one of the greatest threats to this reform, he said: “We have to start now; time is the enemy of reform. Here in İstanbul, this may be the foundation of a new IMF.”

He warned, however, that three lingering issues threatened to derail the economic recovery and that the world had to work together to make sure the recovery, and indeed the post crisis economic order remained on track.

He said firstly global cooperation was needed and the cooperation witnessed in Pittsburgh was “significant.” “We will really have what we have long been asked for: one institution where all countries will be represented.” Secondly, he called on world leaders to ensure that regulation and supervision of the financial sector remained on track. The G-20 would be helpful in this regard, he said. Thirdly, he said the IMF would be essential in ensuring a more stable monetary environment. “We will be a lender of last resort in order to help remedy the global imbalances that exist at present.”

Strauss-Kahn cited the commonly asked question of “Why do we have countries with huge surpluses and others with huge deficits?” and provided an answer, saying the reason was that lessons learned by many countries from previous crises was that if a country wanted to protect its currency, and indeed, economy against speculative attacks, a large pool of reserves was essential. “Speculation on your currency causes us to pool reserves. We now have a pool,” he said, stressing that this pool would serve to influence countries to not rely on their own and thus remedy many of the imbalances. Providing these pooled resources “is part of the organization’s new mandate.”

“I don’t believe this was in the minds of the founders of the institution,” he said, referring to the ability to help the countries needing funds to resist speculative pressures on their currencies.

Later when asked by reporters, however, he dismissed notions of implementing a Tobin tax-like mechanism to guard against just these sorts of speculative attacks as outdated, and pointed out that when Tobin himself advocated the tax in the 1970s he realized that the system had grown so complicated by the end of the decade it no longer seemed feasible. The reserve pool, he hoped, would go a long way to providing what the so-called Tobin tax was conceived to combat.

An emerging social dimension could also be detected in the words of Strauss-Kahn, who not only emphasized the zero interest loans that were presently being offered to the hardest hit and poorest countries of the developing world, but also noted that the fund was taking an increased interest in issues related to “peace.” Economic crisis, he cautioned, “may lead to social unrest, democratic problems, to risk of civil disorder to even further war.”
WB head warns of tough year ahead

World Bank President Robert Zoellick said on Friday at a press conference that despite a mild recovery from the crisis in 2009, it would continue to be a tough year for all countries. At the press conference held within the scope of the IMF-World Bank annual meetings, Zoellick said uncertainties would linger in 2010, especially in the export and tourism sectors. This, he said, would have an especially strong impact on poorer countries.

He said as per the decisions undertaken in Pittsburg, the International Development Agency would provide aid to poor and underdeveloped countries as these were the people most affected by the crisis.

Zoellick said China and India were leading the world out of the crisis, noting that the world was heading towards a multipolar economic system, which had caused a revision in the Bretton Woods system both the IMF and the World Bank were founded upon. Zoellick also said the World Bank had stepped up efforts to raise a “disaster fund” to help earthquake-hit Indonesia and the Philippines and other countries in the region.
source: Today’s Zaman

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The incident took place during Strauss-Kahn’s speech to students at İstanbul Bilgi University earlier on Thursday. Turkish student Selçuk Özbek, 24 — who is also a journalist for the small left-wing newspaper Birgün — threw his white sports shoe at Strauss-Kahn, but the shoe fell short hitting him. Another student tried to unfurl a banner but was overpowered by security teams. Both students were detained by the police but were later released.

British business newspaper the Financial Times said the incident was considered to be a reflection of the deep distrust of the IMF in the country hosting the meetings. The daily asserted that Turkey’s propensity for economic crises made it one of the IMF’s most assiduous clients. “Many Turks blame the IMF for fostering a reliance on external funding, with one columnist likening relations to those ‘between the drug addict and the drug dealer.’ But 18 loans later, and after a year of on-off talks over a new financing package, the government is determined to prove it is no longer reliant on either the IMF’s money or its policy blueprints,” the daily reported.

Talks between Turkey and the IMF on a possible stand-by deal have been continuing without reaching an agreement for a long time, despite pressure from both the domestic and overseas business communities, the daily stated, adding that “this new confidence comes despite a punishing recession,” referring to a recent survey conducted by the World Bank which found that three-quarters of families had lost income this year in Turkey’s five largest cities.

Meanwhile, government officials expressed concern about the incident. Prime Minister Recep Tayyip Erdoğan said on Thursday that he considered it an attack, not a protest. “I consider throwing a shoe to be disrespectful to Turkish hospitality by imitating the incident that occurred in Iraq. This is not a democratic stance,” he added.

Interior Minister Beşir Atalay said: “Throwing a shoe exceeds the limit. This is sad for us. Turkey is hosting an important meeting, and we have to do it well,” adding that security measures have been taken for the IMF-World Bank meetings.
source: Today’s Zaman

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Dominique Strauss-Kahn, head of the International Monetary Fund, was greeted by a shoe-thrower during his speech to students at Istanbul’s Bilgi University on Thursday. The shoe missed the IMF chief and hit a student who was asking Strauss-Kahn a question.

The protester, Selçuk Özbek, was detained for a couple of hours and then released. He was working at the socialist Birgün newspaper, according to local media. After the incident, Zeynep Çatalkaya, a student, tried to open a banner but was stopped by security forces.

As the protesters were taken out of the venue, another group protested the IMF and the government by shouting slogans such as, “Go away IMF,” “IMF is the thief, AKP is the collaborator.”

On its Web site, Birgün newspaper published the story with the headline, “IMF beat it!”

In scattered protests outside the university, 17 protesters were detained, the police said. Students from the private Bilgi and Koç universities and those from Istanbul Technical University attended the conference.

After the incident, Strauss-Khan joked with the student who was hit by the shoe, asking, “What is it about you that these guys do not like?”

Answering questions from students, the IMF chief said there was “no rush and tension” between the IMF and Turkey. “The IMF will be there when Turkey wants it to be,” he said. “Right now, every country has problems, and Turkey is no exception.”

During his speech, Strauss-Kahn claimed the IMF had predicted the timing and depth of the crisis beforehand. “By the beginning of 2008 and end of 2007, the IMF had predicted that there will be a great mess,” he said.

How IMF fared during crisis

“The first duty of the IMF is surveillance and forecast,” he said. “In this, the IMF has succeeded 50 percent. Our second duty is policy advice. In this area I can say that the IMF did a good job. The third duty is financing, an area that the IMF is very rigid about [at the moment].”

One student recalled the Argentina crisis and said the IMF is “not a solution but a problem,” as Strauss-Kahn said Argentina is a particular example. “We should look at Asian countries such as South Korea,” he suggested.

“Countries that request money from the IMF always have huge domestic problems,” he said. “And to reduce budget deficits is not an easy task.”

The IMF chief also said global economic recovery has started and that in most countries “growth is coming back,” but unemployment remains a huge problem.

Countries will continue to work in the future, he said, recalling the rising clout of the Group of 20 nations.

Despite critical questions from students, the IMF chief looked relaxed. “He told things that we already know,” said Ali Armutçu, 21, a Bilgi University student. “He tried to express himself in a sympathetic way. The protest at the end came as no surprise to me.”

“I think the protest was very negative,” said Dilek Koçal, 21. “No one should do such a thing. I think the conference was very informative in general.”

Throwing shoes as a form of protest became famous worldwide when Muntazer al-Zaidi, an Iraqi journalist, threw his shoes at former U.S. President George W. Bush last December.
source: Hurriyet daily news

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Signing a new deal with the International Monetary Fund is not a must for Turkey’s recovery process, said Turkish Exporters’ Assembly, or TİM, President Mehmet Büyükekşi during a press conference held to announce the country’s export figures.

Turkey’s export figures dropped 30.53 percent to nearly $8.39 billion in September compared to the same period last year, Büyükekşi announced Thursday in Uşak, a city in the interior part of the Aegean region. The nine-month export total declined by 32.67 percent to $68.896 billion, Büyükekşi said. The country’s year-on-year export slipped 28.89 percent to $94.283 billion. However, the country’s exports increased 9.36 percent in September from a month earlier.

The automotive industry and its suppliers ranked first with exports worth $1.636 billion in September, Büyükekşi said. It was followed by the ready-wear industry, with $1.034 billion. Chemical materials and products ranked third with exports worth $846 million.

The agricultural sector, which netted $1.162 billion from its exports last month, had a 13.85 percent share in the country’s total exports. The industrial group, which gained $6.967 billion from exports, had 83.06 percent in Turkey’s aggregate exports. In the first nine months of the year, the industrial sector grabbed $58.04 billion. The exports of mining products totaled $260 million in September. The sector attained $1.745 billion in the first nine months of the year. Its year-on-year figure was $2.352 billion.

IMF not a must

Speaking on the ongoing talks with the International Monetary Fund, Büyükekşi said that he was against signing a deal that would not support production and exports. “We, as the assembly, support a relation that can increase Turkey’s credibility in the international arena, instead of a loan-based relation,” he said. “IMF support is not a must for this country. We expect to start our recovery process quickly, even without the IMF. We have to believe in ourselves.”

The TİM president also commented on the change in the role of the fund in line with the changing global circumstances. “The IMF and the World Bank will have a more regulating and balancing role in the new economic order. We will be able to shift to a balanced international system with emerging economies obtaining a more active role beside the developed countries,” he said, stressing the importance of Turkey in the new system.

Welcoming the interest-rate cuts by the Turkish Central Bank, he said that there was still much congestion in the loan market, urging improvement in the cooperation between the real sector and financial sector. Demanding support for exporters, he also urged Turkey’s exporters to have a louder voice in the markets. Maintaining their market share and grabbing rivals’ shares are keys to success in global markets, he said. “As the 2010 budget is prepared, it is crucial to provide $1 billion in support to our exporters,” he said, also underlining the importance of purchase support in other markets.

Expressing dissatisfaction with the government’s middle-term fiscal plan, Büyükekşi said that the export-increase projection in the plan was below the forecast of exporters. “Measures to help exports reach their growth target should definitely be a part of the program,” he said. Turkey’s target is to achieve $500 billion in 2023, he said. TİM is conducting necessary planning for a road map to reach this target, he added.

Describing Uşak’s performance in the country’s exports, Büyükekşi said that the city ranked 39th with $54 million in exports within the first eight months of the year. Textile together with ready-wear and apparel are the leading sectors among the city’s exports.

Speaking at the meeting, Hazim Sesli, chairman of the Turkish Confederation of Young Businessmen, or TÜGİK, said that Turkey was well prepared for any crisis with its experience in former crises. Turkish exporters have been going through a “commando training” since 1991, he said.
source: Hurriyet daily news

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Thousands of professionals, managers, scientists, public authorities and tech geeks from around the world are expected to visit the fair, which will be held at the TÜYAP Fair Center in Beylikdüzü. Turkish President Abdullah Gül and Transportation Minister Binali Yıldırım will also attend the opening ceremony. This will be the fair’s 10th year.

“CeBIT Eurasia 2009 expanded in terms of the number of exhibitors and foreign participants, despite the global turmoil,” said Orkunt Yozgat, the fair director of Hannover Fairs Interpro International Fairs, or HİFAŞ , the event organizer. CeBIT Eurasia was presented Thursday in a press conference at Istanbul’s Swissotel.

Last year, CeBIT Eurasia hosted 971 exhibitors, said Alexander Kühnel, HİFAŞ general manager. The number of exhibitors is expected to reach 1,000 this year.

Almost 160,000 visitors, including some 70,000 businesspeople, visited last year’s CeBIT. The fair will end Oct. 11.

Meanwhile, Broadcast Cable & Satellite Eurasia 2009, the fair for the television industry, will be organized concurrently with CeBIT Eurasia 2009 in a separate hall at the same fair grounds. European satellite operator Eutelsat is the sponsor of the broadcast fair, while Turksat is the main sponsor of CeBIT 2009.
source: Hurriyet daily news

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The IMF’s prediction exceeds the government’s estimate of a contraction of 6 percent this year and is more than the 5.1 percent shrinkage the fund predicted its World Economic Outlook in July.

“The government last week revised down its own growth assumption for 2009 to minus 6 percent, with 3.5 percent growth forecast in 2010, so the IMF’s latest forecasts are more or less in line with the official view,” said Tim Ash, chief of Europe, Middle East and Africa research at Royal Bank of Scotland in London, wrote in an e-mailed report to investors.

“A 3.5 percent to 3.7 percent growth rebound seems optimistic in our view, given the global context still, albeit with a minus 10 percent print for the first quarter of the year, the low base period effect should kick in.”

Gross domestic product, or GDP, dropped 14.3 percent in the first quarter of this year, the sharpest decline since quarterly records began in 1987, and fell 7 percent in the second quarter.

The slump has eaten into tax revenue and forced the government to spend more on support jobs and pay for social security support.

The Central Bank has slashed the benchmark interest rate by 9.5 percentage points in 11 months as the slowdown helped reduce the inflation rate. Consumer-price inflation will average 6.2 percent this year and 6.8 percent next year, the IMF said.

The current-account deficit will narrow to 1.9 percent of GDP this year from 5.7 percent in 2008, the IMF said. The deficit in 2010 will be 3.7 percent of GDP, it said.
source: Hurriyet daily news

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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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