The International Monetary Fund is generally credited with forecasting a global economic revival earlier than other major international institutions, including the World Bank. In the latest World Economic Outlook, the IMF finds further evidence of the world economy recovering from the global economic crisis. In nearly all countries the recovery is even better than expected. World output is forecast to grow by 4.2 per cent in 2010, up from the IMF's January 2010 projection of 3.9 per cent. Advanced economies, including the U.S. and the Euro Zone countries, are set to grow by 2.2 per cent this year. As was the case last year, the ongoing recovery continues to be uneven.The U.S. is off to a better start than Europe and Japan. Emerging Asia led by China and India are in the forefront of the recovery while many countries in Europe and in the Commonwealth of Independent States are lagging behind. China and India will grow by 10 per cent and 8.8 per cent respectively in 2010. While the forecast for China remains the same as it was in January, the one for India has been raised by a significant 1.l percentage points. Evidently, the IMF has taken into account the series of recent, upbeat economic news that show the Indian economy to be more resilient than thought. The IMF's projected growth rate for India for 2010 is indeed higher than the RBI's 8 per cent forecast for 2010-11.
While being generally upbeat, the IMF warns that the outlook remains unusually uncertain. The fiscal condition of many countries has deteriorated posing significant downside risks. For instance, the rapid increase in public debt in many advanced countries poses risks to their banking systems which, in turn, can be transmitted abroad. Since global recovery is still fragile, the fiscal stimulus planned for 2010 should be implemented. A policy agenda for achieving strong, sustained and balanced growth would require, among others, fiscal consolidation in advanced countries, exchange rate adjustments, and a rebalancing of demand across the world. Combating the high level of unemployment in advanced countries is a major worry as temporary joblessness can turn into long-term unemployment. That could spark off protectionism and derail once and for all multilateral trade initiatives such as those embodied by the Doha round. There is an urgent need to evolve a consensus over financial sector regulation in the developed countries. After all, it was the glaring shortcomings of the financial sector in the U.S. and other advanced countries that caused the worst global economic crisis in living memory.
