In its most recent update, the International Monetary Fund has confirmed that global economic outlook has turned positive after a deep recession, which is by far the most categorical assertion by any major institution. Other forecasts including an earlier one by the IMF had pointed to the recession ending. But all those have been less clear about global economic growth setting in. For instance, in mid-September U.S. Federal Reserve Chairman Ben Bernanke had said that even the U.S. — among the most affected countries — was coming out of recession, but stopped short of putting out figures for a recovery. Mr. Bernanke’s statement made on the eve of G20 Summit at Pittsburgh had hinted at a tapering off of the monetary and fiscal stimulus packages. However, the consensus at the G20 meeting was on the stimulus continuing until signs of recovery are more clearly discernible across the globe. In what was seen as the biggest challenge to their domestic public finances, it was agreed that individual countries, despite their soaring deficits, spiralling debt, and the threat of inflation, would not do anything to stop the recovery in its tracks. Even the latest IMF forecast does not recommend a reversal of policies that have helped them prevent a much deeper crisis on a global scale.
The IMF, which has generally been less pessimistic than its peers — notably the World Bank — has forecast global activity to expand by about 3.1 per cent in 2010 after contracting by about one per cent in 2009. Advanced economies which are estimated to contract by 3.5 per cent this year will post a modest growth of 1.25 per cent in 2010. Economic rebound is driven by China, India and a number of emerging Asian economies, notably Indonesia. For both China and India, the IMF has revised its earlier estimates upwards to 9 per cent and 6.4 per cent respectively. Countries in West Asia are predicted to grow by 4.2 per cent in 2010, more than double the projected rate for 2009. The IMF has admitted that the pace of recovery is slow and economic activity remains far below the pre-crisis levels. For recovery to be sustained and more broad-based, there has to be a rebalancing of the global economy. The broad principles for reforming financial regulation agreed upon must be implemented vigorously. Despite the slight improvement in the global outlook, there is no room for complacency, for there is no guarantee that the large financial players will not revert to their old ways.
