IMF forecasts 'sluggish' global recovery

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By David M. Dickson

Following the deepest and longest global economic downturn since the Great Depression, the world economy next year will expand moderately faster than predicted, the International Monetary Fund said Wednesday.

After world output contracts 1.4 percent this year, the IMF said the global economy will expand 2.5 percent next year, 0.6 percent faster than it forecast in the spring.

The U.S. economy is expected to grow by 0.8 percent next year after shrinking by 2.6 percent in 2009. Previously, the IMF expected the U.S. economy to remain flat next year.

"The global recession is not over, and the recovery is still expected to be slow" and "sluggish," the IMF said, adding that "stabilization is uneven." World trade volume is expected to grow by just 1 percent next year after plunging 12.2 percent in 2009, an unprecedented postwar collapse.

"The incipient global recovery will begin weakly," agreed Virendra Singh, a director at Moody's Economy.com who specializes in international economics. "The financial industry, although looking vibrant compared with the latter half of 2008, has a long way to go before it returns to a normal state."

Risks to its outlook are "still tilted to the downside," mostly owing to several factors prevalent in advanced economies, the IMF said. These include rising unemployment, falling home prices, still-fragile banking systems and questions about public debt sustainability, especially in the United States.

Those factors threaten to derail the recovery, the IMF warned in its World Economic Outlook update, which it released Wednesday as the Group of Eight convened its annual summit in Italy.

In an update to its Global Financial Stability report, the IMF identified "an unparalleled transfer of risk from the private to the public sector" as governments and central banks undertook "unprecedented policy interventions" that "reduced the risk of systemic collapse." As a result, several countries, including the United States, face a "a mounting burden of fiscal sustainability."

A growth rate of 0.8 percent next year would not be fast enough to prevent U.S. unemployment from rising in 2010. The U.S. jobless rate reached 9.5 percent in June.

Recently, the Organization for Economic Cooperation and Development, whose 30 members mostly include wealthy nations, projected that U.S. joblessness would average 10.1 percent during all four quarters next year.

Such a development would be unprecedented in the postwar period. The U.S. unemployment rate peaked at 10.8 percent at the trough of a recession in late 1982, but it then declined steadily as a robust recovery ensued.

The price of oil will average nearly $75 per barrel next year, the IMF projects.