The International Monetary Fund's twice-yearly publication, the World Economic Outlook , has been tracking the progress of the global economy in its recovery phase. During the early days of recovery, world economic growth was sustained by the large developing economies, especially China and India. Recently, recovery has become more broad-based, if still uneven. According to the latest WEO, the advanced economies will continue to recover from the global financial crisis while many developing economies are above pre-crisis trend levels. The ‘two-speed' recovery carries with it risks. It has resulted in a situation where the world's major economic powers are either unwilling or unable to agree on a common approach to solving global problems. Global financial imbalances cannot be tackled because deficit and surplus countries differ sharply on the policies to be adopted. Virtually every country professes faith in multilateral trade, yet the Doha round is in danger of collapse. G20 countries have found it more difficult to co-ordinate their strategies during the recovery phase than they were able to during the crisis.
The IMF forecasts world gross domestic product to expand by 4.4 per cent this year and by 4.5 per cent in 2012. The advanced economies will grow at 2.4 per cent in 2011 and 2.6 per cent in 2012 and the emerging and developing countries at 6.5 per cent in both years. Many old challenges remain unaddressed even as new ones have emerged. Weak sovereign balance sheets and still moribund real estate markets remain major concerns, especially in some euro area countries. Strengthening the recovery in the developed economies requires that ultra-soft monetary policies continue but these fuel potentially destabilising capital flows to India, Brazil, and other emerging economies. Financial conditions remain fragile in some countries. Rising food and commodity prices impose harsh burdens on people. For India and many emerging economies, the challenge is to ensure that boom-like conditions do not yield to overheating in the coming year. Inflation is likely to intensify as capacity constraints accentuate supply side pressures. The IMF has marked down India's growth estimate to 8.2 per cent this year, from 10.4 per cent in 2010.
