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IMF Raises 2010 Growth Estimate, Sees Recovery Risk

IMF Raises 2010 Growth Estimate, Sees Recovery Risk

8 July 2010,

By Sandrine Rastello

July 8 (Bloomberg) — The International Monetary Fund raised its forecast for global growth this year, reflecting a stronger-than-expected first half, while warning that financial- market turmoil has increased the risks to the recovery.

The world economy will expand 4.6 percent in 2010, the biggest gain since 2007, compared with an April projection of 4.2 percent, the Washington-based fund said in revisions yesterday to its World Economic Outlook. Growth next year is projected to be 4.3 percent, unchanged from the April forecast.

Canada and the U.S. are leading advanced economies out of the worst recession since World War II, trailed by euro-area countries that need additional measures to boost confidence in their banks, the fund said. Faster expansions in Brazil, China and India are helping to protect the global recovery as a sovereign-debt crisis weighs on Europe, the IMF said.

“The overarching policy challenge is to restore financial- market confidence without choking the recovery,” the IMF report said. “The new forecasts hinge on implementation of policies to rebuild confidence and stability, particularly in the euro area.”

The euro has fallen against the dollar in each of the past seven months on concern nation including Greece and Spain might default on their debt. The MSCI AC World Index of stocks has dropped for three straight months, and the Markit iTraxx SovX Western Europe Index of default swaps insuring against losses on debt of 15 governments last month reached an all-time high.

‘Cloud’ Over Outlook

“Recent turbulence in financial markets — reflecting a drop in confidence about fiscal sustainability, policy responses, and future growth prospects — has cast a cloud over the outlook,” the IMF report said.

Fiscal woes in advanced economies may curtail the flow of capital to emerging markets, Olivier Blanchard, the IMF’s chief economist, said at a press briefing today in Hong Kong. Blanchard said the reversal will prove “temporary” in the aftermath of the European crisis, with a resumption of flows over time.



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