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Wednesday, 8 July 2009

IMF expects slow recovery from global recession

By Christopher S. Rugaber, AP Economics Writer

WASHINGTON (AP) -- The global economy is beginning a sluggish recovery from its worst recession since World War II, the International Monetary Fund said Wednesday.

Financial conditions have improved faster than it expected when it made its last global forecast in April, the fund said, largely due to government support for banks and other financial companies.

The IMF expects the world economy to shrink by 1.4 percent in 2009, slightly worse than its earlier estimate of 1.3 percent. But it boosted its estimate for global economic growth in 2010 to 2.5 percent, up from its April projection of 1.9 percent.

"The global recession is not over, and the recovery is still expected to be slow," the IMF said in an update to its world economic outlook. Banks are still hampered by bad loans on their balance sheets, the fund said.

Advanced economies such as the United States, Europe and Japan aren't expected to show sustained growth until the second half of next year.

Central banks that still have room to cut interest rates should do so, the IMF said, and governments should continue to stimulate their economies through 2010 with measures such as greater spending or tax cuts.

The IMF expects the U.S. economy to shrink by 2.6 percent this year, a slight improvement from its earlier estimate of a 2.8 percent decline and in line with many private forecasts.

The U.S. will grow 0.8 percent in 2010, the IMF said, up from its expectation of no growth in April.

China and India are both expected to grow faster than previously estimated, with China's growth forecast at 7.5 percent this year and India's economy to grow at a 5.4 percent pace.

The IMF provides loans and other assistance to troubled countries and has 185 member nations. It saw its influence decline earlier this decade as developing country economies boomed due to higher oil and other commodity prices.

But the worldwide recession has caused countries in Eastern Europe and elsewhere to turn to the fund for loans to support their crippled economies.

The Obama administration pledged $100 billion earlier this year to support an IMF emergency loan fund.

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