IMF Ignores Gathering Storm Clouds, Predicts 5.2% Global Growth

27 July 2007

WASHINGTON, DC: The International Monetary Fund on Thursday raised its growth forecast for the global economy, both this year and in 2008. It foresees global growth of 5.2% this year and next, bettering its April prediction of 4.9% for both years.

It bases its bullish augury on accelerating growth in China, India and Russia and the [none too convincing] signs of recovery in the US economy.

Much of which is at odds with last month's warning by the Bank for International Settlements that "years of loose monetary policy have fuelled a dangerous credit bubble, leaving the global economy more vulnerable to another 1930s-style slump".

But the IMF's Charles Collyns is seemingly oblivious. "China will be the largest contributor to global growth," he says, adding that along with Russia and India it will account for over half the 5.2% increase in global economic growth this year.

However, even the PollyAnna-ish IMF warns of growing inflationary pressures, especially from soaring energy prices. It also sees a greater likelihood that central banks will raise interest rates.

And moving slightly nearer to the BIS's nervy stance, it cautions that risks in the financial markets are greater, due to the number of defaults in the subprime mortgage sector.

Turning again to the planet's greatest economic engine, the IMF believes the USA has gained momentum since the slowdown in this year's first quarter. Despite lowering its 2006 forecast from 2.2% to 2.0%, the bank's 2008 forecast remains unchanged at 2.8%.

Data sourced from BBC Online (UK); additional content by WARC staff