IMF raises global economic growth forecast to 3.5% from 3.3%

‘Some Optimism’

“Some optimism has returned,” IMF chief economist Olivier Blanchard said in a statement accompanying the report. “It should remain tempered. Even absent another European crisis, most advanced economies still face major brakes on growth. And the risk of another crisis is still very much present and could well affect both advanced and emerging economies.”

European nations should decrease the links between governments and banks, “from the creation of euro level deposit insurance and bank resolution to the introduction of limited forms of Eurobonds, such as the creation of a common euro bill market,” Blanchard said.

On China, the IMF said growth in the world’s second-largest economy had “moderated” since mid-2011, “and there is so far little sign of a sharp correction in the potentially overheated real estate sector and most related activities, despite widespread concerns about a hard landing.”

After 8.2% growth for China this year, the IMF forecasts an 8.8% expansion in 2013.

‘Disorderly Default’

“The potential consequences of a disorderly default and exit by a euro area member are unpredictable and thus not possible to map into a specific scenario,” the IMF said. “If such an event occurs, it is possible that other euro area economies perceived to have similar risk characteristics would come under severe pressure as well, with a full-blown panic in financial markets and depositor flight from several banking systems.”

On consumer prices, the IMF projects a 1.9% increase this year in advanced economies and 1.7% in 2013. Those are higher than the 1.6% and 1.3% the lender forecast in January. In emerging and developing countries, inflation will be 6.2% this year and 5.6% in 2013.

Bloomberg News


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