With Asia as the leader, the world economy is quickly recovering than what is anticipated from the financial recession and crisis, stated yesterday by the IMF. However, it indicated the danger of the financial crisis growing in economies where the authorities heavily spent to stimulate growth, and warned that the further recovery would become slow.
In the IMF’s latest World Economic Outlook revealed yesterday at the beginning of World Bank and IMF annual gatherings in Istanbul, the IMF said GDP growth globally is estimated to be 3.1 percent next year after an anticipated 1 percent contraction in 2009. This shows 0.6 percent higher than the estimate conducted six months ago. In advanced economies, growth is estimated to be 1.7 percent overall next year, while rising economies will extend at a much stronger pace of 5.5 percent.
According to the WEO, “The global economy is expanding again and financial conditions have improved markedly”. It noted that led by a “resurgence in Asia, emerging and developing economies are further ahead on the road to recovery”.
“Emerging economies have withstood the financial turmoil much better than expected from past experience, which reflects improved policy frameworks”.
The IMF also said that earnings in economic activity are also being seen today in advanced economies. “Financial market sentiment and risk appetite have rebounded, banks have raised capital and wholesale funding markets have reopened, while emerging market risks have eased”, it said.
However, IMF Research Director Olivier Blanchard said in a briefing on the WEO that most of the growth in the worldwide activity was “strongly accounted for” by the financial input of the government. And by that, debt to GDP ratios are expected to increase to 120 percent of GDP in advanced economies on average next year.
Mr. Blanchard also revealed that the International Monetary Fund is studying into what is probably to occur once governments are pushed to further spend on economic input, and if the private division demand doesn’t beef up as quickly as expected.
He also recognised that financial crises have the possibility to arise once markets become frightened about the increasing levels of debt by the government. He said that such crisis could push authorities to undergo structural reforms that they are unwilling to do at the moment.
After the briefing, Mr. Blanchard told The Business Times that in other cases this could demand governments to restructure their social and health security systems, which greatly suffer on overall consumptions.
The financial position of the Chinese governments is currently degenerating under the burden of serious stimulus plans, while the US government is depicted as the most assailable to a possible financial crisis in the light of its rising government debt. In Japan, the government debt to GDP is reaching 200 percent, and is also depicted to be at risk.
The IMF said, “Complacency must be avoided,’ despite the fact that the world economy appears to have escaped the earlier-feared prospect of a repeat of the Great Depression in the 1930s”.