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Text by News Wires

Latest update : 2012-04-18

The International Monetary Fund hiked its global growth forecasts for this year and 2013 to 3.5% and 4.1% respectively, praising coordinated austerity measures in Europe but warning that the continent could yet derail the recovery.

AP - The International Monetary Fund is more optimistic about the global economy after seeing faster U.S. growth and a coordinated effort in Europe to address its debt crisis.

The global lending organization said Tuesday that the U.S. economy should expand 2.1 percent this year. Europe will likely shrink 0.3 percent and the world economy should grow 3.5 percent. All three of the IMF’s estimates are slightly better than its January’s forecasts.

The group praised European leaders for bulking up its bailout fund and taking other steps to address the crisis. The IMF said the crisis continues to loom as the biggest threat to the global economy.

The IMF’s World Economic report comes as the 187-nation IMF and its sister lending institution, the World Bank, prepare to hold their spring meetings in Washington this week.

The report represents improvement from January, when IMF officials warned that the global economic recovery was in danger of stalling.

Since then, European leaders have worked together on a plan intended to restrain deficit spending. New governments in Spain and Italy have committed to reforms and spending cuts. And the European Central Bank has lent more than $1 trillion to the region’s banks. That has brought down borrowing costs in some of the most troubled countries.

In the U.S., consumers are spending more, business investment has grown and the job market has shown “signs of life,” the report says.

“With the passing of the crisis, and some good news about the U.S. economy, some optimism has returned,” Olivier Blanchard, the IMF’s chief economist, wrote. “It should remain tempered.”

Blanchard said that the risk that Europe’s debt crisis could worsen remains high. And even if it does not, growth in most advanced economies is likely to remain slow.

Governments are cutting spending and raising taxes in Europe, the United States and Japan, dragging on growth, the report said. And banks are also reducing their debts, particularly in Europe. That’s reducing lending and also slowing growth.

Still, the economic landscape has improved from only a few months ago. IMF Managing Director Christine Lagarde said last week that the better outlook means the IMF might not need to seek as big a boost to its war chest. She had suggested in a January speech that the international lending organization would need an additional $500 billion, on top of the roughly $385 billion it already has.

She didn’t specify a figure last week but indicated that she hoped to resolve the issue at the April 20-22 meetings of the IMF and World Bank.

Date created : 2012-04-17


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