World economy shows signs of life

IMF projects Bangladesh growth at 5.4pc for 2010, points to inflationary pressure

Rejaul Karim Byron, from Istanbul

International Monetary Fund (IMF) has projected 5.4 percent economic growth for Bangladesh in 2010, accompanied by marginal inflationary pressures next year.

IMF’s economic growth projection for 2010 is the same as for this year.

It predicted that inflation pressures would reach 5.6 percent in 2010, rising from 5.3 percent projected for 2009.

The forecasts were published in ‘the World Economic Outlook’ released yesterday, five days prior to the IMF-World Bank annual meetings in Istanbul, Turkey.

In previous publications, IMF forecasted Bangladesh GDP growth at 6 percent and 6.3 percent for 2008 and 2007 respectively.

After deep global recession, the Washington-based institution said, economic growth has turned positive, as wide-ranging public intervention supported demand and lowered uncertainty and systemic risks in financial markets.

Following a sharp decline in the first quarter of 2009, output in the second quarter has begun to expand in some advanced and many emerging economies — led by Asia — but in much of the world, activity remains depressed, says the IMF report.

“Recovery is expected to be slow, as financial systems remain impaired. Support from public policies will gradually have to be withdrawn and households in economies that suffered asset price busts will continue to rebuild savings while struggling with high unemployment,” says the report.

The key policy requirements remain to restore financial sector health while maintaining supportive macroeconomic policies until recovery is on a firm footing. However, policymakers need to begin preparing for an orderly unwinding of extraordinary levels of public intervention, says the report.

The global economy may shrink 1.1 percent in 2009 and is expected to increase 3.1 percent in 2010. The estimates were higher than forecasts put out in July of 2.5 percent expansion next year and a 1.4 percent contraction in 2009.

IMF projected a negative 3.4 percent GDP growth for the advanced economies, which is expected to recover with 1.3 percent growth in the next year.

However, the IMF warned that the data shows the rebound will be sluggish and “for quite some time” it would be slow to generate jobs. Meanwhile, credit would remain tight.

The US, the world’s largest economy, may not recover from the downtrend this year. IMF projected a 2.7 percent decline in GDP growth for the US economy this year and a 1.5 percent increase in 2010.

Growth is expected to turn positive in the second half of 2009, reflecting the continuing fiscal boost and turns in both the inventory and the housing cycles. However, although financial conditions have improved significantly in recent months, markets remain stressed and this will weigh on investment and consumption, the IMF report says of the US economy.

Unemployment in the US is expected to peak at above 10 percent in the second half of 2010, while rising economic slack should keep core inflation below 1 percent through most of next year.

In Europe, the pace of decline was moderating, with the 16-nation eurozone seen returning to growth of 0.3 percent in 2010, instead of the 0.3 percent fall projected in the IMF’s previous forecast in July.

The IMF forecast indicated that emerging Asian countries as a whole are on the road to recovery from the global economic downtrend. However, Korea, Taiwan, Hong Kong, and Singapore are expected to face economic growth declines in 2009, with possibilities of recovery next year.

Developing Asian countries such as China and India are expected to continue strong economic growth. The projection said China would grow 9 percent and India 6.4 percent in 2010, which was 8.5 percent for China and 5.4 percent for India in the current year.

Although Asia’s export-oriented economies were battered by the abrupt global downturn, the economic outlook for the region improved markedly in the first half of 2009, IMF said.

“Recent developments point to strengthening of domestic demand and exports, but questions remain about whether rebound can become self-sustaining — ahead of stronger growth pickup in the rest of the world,” the IMF report says.

The recent, swift turnaround of economic fortunes is remarkable. At the onset of the crisis, Asian exporters were hit hard by the collapse of external demand. The deterioration of activity was especially rapid for the more export-oriented economies.

In Asia, manufacturing-oriented economies like Korea, Singapore and Taiwan slumped and by the end of 2008, recorded peak declines in industrial production of about 25 percent.

Only China, Indonesia and India escaped severe recession, the result of a large policy stimulus and, in the case of India, less dependence on exports.

A fundamental challenge in the aftermath of the economic crisis will be to sustain solid global growth given the damage caused by the crisis to productive potential and balance sheets, says the IMF report.

The financial system’s capacity for efficient intermediation and innovation will need to be restored to support growth, while safeguarding financial stability.

From the demand side, the global economy faces a difficult rebalancing act — shifting the sources of growth from public to private demand and from internal to external demand, in external deficit countries affected by pronounced credit and housing cycles, matched by counterpart adjustments in surplus countries that have been heavily reliant on export-led growth.

Even with improving financial market conditions, many households and firms in both advanced and emerging economies will continue to face difficult conditions.

In particular, bank loans to the private sector are still stagnating or contracting in the US, the Euro area and the UK, consistent with surveys among bank loan officers that point to a continuation of very tight credit conditions.

Source: The Daily Star, 02 October 2009

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