Post by Sapphire Capital on Jul 17, 2008 23:05:25 GMT 4
July 17 (Bloomberg) -- The International Monetary Fund raised its forecast for global economic growth this year and warned rich and poor countries alike that higher interest rates may be necessary to combat rising inflation.
The world economy will expand 4.1 percent this year, faster than the 3.7 percent pace projected in April, the fund said in a report released today in Washington. The IMF raised growth forecasts for six of the Group of Seven industrial nations, with only Canada's economy downgraded. The outlooks for China, Brazil, Russia and India were also lifted.
A global slowdown in growth tied to tightening credit in the first quarter was less severe than expected, the IMF said. The fund said inflation is a mounting threat and lifted its forecasts for price increases in both developing and advanced economies.
``Inflation is a rising concern and will constrain the policy response to slower growth,'' the IMF said in its latest World Economic Outlook.
In many emerging markets, the fund said ``monetary policy needs to be tightened, combined with greater fiscal restraint and, in some cases, with more flexible exchange-rate management in order to reverse the recent build-up in inflation.'' Expansions in the developing world are ``expected to lose steam,'' the fund said.
For industrial nations, the fund said the ``the case for policy tightening in these economies is stronger than before the recent oil price increase.''
The IMF projects the U.S. economy will grow 1.3 percent in 2008, up from a forecast of 0.5 percent in April. This was the largest increase in the forecast of any of the group of seven leading industrial nations.
U.S. Fed Policy
Next year the U.S. will expand by 0.8 percent, compared with its previous prediction of 0.6 percent, the IMF said.
Federal Reserve policy makers on June 25 kept their benchmark interest-rate target at 2 percent and, in a statement, said ``the upside risks to inflation and inflation expectations have increased.''
In the euro zone, growth this year will be 1.7 percent, higher that the 1.4 percent expansion forecast three months ago, led by a faster expansion in Germany, the IMF said.
A jump in consumer prices prompted the European Central Bank to raise its key interest rate to a seven-year high of 4.25 percent this month.
The forecast for Japan was increased to 1.5 percent, up from the 1.4 percent expected in April. Gross domestic product in Canada will rise 1 percent this year, the IMF said, less than the 1.3 percent the fund predicted in April.
Inflation Worries
China will grow by 9.7 percent this year, compared with a forecast in April of 9.3 percent, the fund said. India's economy will likely grow 8 percent in 2008, little changed from April's 7.9 percent forecast, the IMF said. Russia's growth outlook was raised to 7.7 percent from 6.8 percent.
Central banks from Mumbai to Frankfurt have recently raised interest rates. Merrill Lynch & Co. economists predict more than 70 percent of the central banks they monitor will do so.
The IMF said that inflation in advanced countries would average 3.4 percent in 2008, compared with a forecast of 2.6 percent in April. For emerging and developing economies, the gains in consumer prices were forecast to average 9.1 percent, up from 7.4 percent in April.
The fund's gloomier inflation outlook reflects data in recent weeks pointing to mounting price pressures.
Inflation in Europe accelerated to the fastest in more than 16 years in June, led by a 53 percent surge in the cost of heating oil. In the U.S., consumer prices in June surged 5 percent from a year earlier, the biggest jump since 1991.
The IMF said that the ``continuing decline in the U.S. dollar and slower growth of the U.S. economy relative to its trading partners have put the current-account deficit on a more sustainable trajectory.''
The world economy will expand 4.1 percent this year, faster than the 3.7 percent pace projected in April, the fund said in a report released today in Washington. The IMF raised growth forecasts for six of the Group of Seven industrial nations, with only Canada's economy downgraded. The outlooks for China, Brazil, Russia and India were also lifted.
A global slowdown in growth tied to tightening credit in the first quarter was less severe than expected, the IMF said. The fund said inflation is a mounting threat and lifted its forecasts for price increases in both developing and advanced economies.
``Inflation is a rising concern and will constrain the policy response to slower growth,'' the IMF said in its latest World Economic Outlook.
In many emerging markets, the fund said ``monetary policy needs to be tightened, combined with greater fiscal restraint and, in some cases, with more flexible exchange-rate management in order to reverse the recent build-up in inflation.'' Expansions in the developing world are ``expected to lose steam,'' the fund said.
For industrial nations, the fund said the ``the case for policy tightening in these economies is stronger than before the recent oil price increase.''
The IMF projects the U.S. economy will grow 1.3 percent in 2008, up from a forecast of 0.5 percent in April. This was the largest increase in the forecast of any of the group of seven leading industrial nations.
U.S. Fed Policy
Next year the U.S. will expand by 0.8 percent, compared with its previous prediction of 0.6 percent, the IMF said.
Federal Reserve policy makers on June 25 kept their benchmark interest-rate target at 2 percent and, in a statement, said ``the upside risks to inflation and inflation expectations have increased.''
In the euro zone, growth this year will be 1.7 percent, higher that the 1.4 percent expansion forecast three months ago, led by a faster expansion in Germany, the IMF said.
A jump in consumer prices prompted the European Central Bank to raise its key interest rate to a seven-year high of 4.25 percent this month.
The forecast for Japan was increased to 1.5 percent, up from the 1.4 percent expected in April. Gross domestic product in Canada will rise 1 percent this year, the IMF said, less than the 1.3 percent the fund predicted in April.
Inflation Worries
China will grow by 9.7 percent this year, compared with a forecast in April of 9.3 percent, the fund said. India's economy will likely grow 8 percent in 2008, little changed from April's 7.9 percent forecast, the IMF said. Russia's growth outlook was raised to 7.7 percent from 6.8 percent.
Central banks from Mumbai to Frankfurt have recently raised interest rates. Merrill Lynch & Co. economists predict more than 70 percent of the central banks they monitor will do so.
The IMF said that inflation in advanced countries would average 3.4 percent in 2008, compared with a forecast of 2.6 percent in April. For emerging and developing economies, the gains in consumer prices were forecast to average 9.1 percent, up from 7.4 percent in April.
The fund's gloomier inflation outlook reflects data in recent weeks pointing to mounting price pressures.
Inflation in Europe accelerated to the fastest in more than 16 years in June, led by a 53 percent surge in the cost of heating oil. In the U.S., consumer prices in June surged 5 percent from a year earlier, the biggest jump since 1991.
The IMF said that the ``continuing decline in the U.S. dollar and slower growth of the U.S. economy relative to its trading partners have put the current-account deficit on a more sustainable trajectory.''