Economic growth in developing countries will expand at more than double the rate elsewhere but financial stability is still at risk, the International Monetary Fund said Tuesday in its latest assessment in the wake of the global recession.
The IMF raised its projections for overall global economic output to an increase of 4.4 percent in 2011, slightly higher than the 4.2 percent anticipated in the Washington-based institution's October report, but slower than the 5.0 percent achieved in 2010.
However, IMF Financial Counselor Jose Vinals cautioned that the risk of volatility remains because of the failure to push through reforms, and address fiscal and banking problems that led to the worst crisis since the Great Depression.
The IMF gave the United States the largest projected increase compared with its October report, raising anticipated economic growth in 2011 from 2.3 percent to 3 percent. Still, chief IMF economist Olivier Blanchard warned the predicted growth "is not going to be able to make a big dent," in high unemployment rates.
U.S. unemployment will hover at 9 percent by the end of 2011 and 8 percent by the end of 2012, Blanchard predicted. The unemployment rate was 5 percent three years ago.
The IMF made no change in its forecasts for the rest of the world, with Asian giants leading the way: China at 9.6 percent and India at 8.4 percent growth. Also unchanged was the forecast for Japan and the 17-country eurozone, at 1.5 percent.
According to the IMF, the economies of advanced countries will expand by 2.5 percent in the next two years while emerging and developing countries are expected to continue a strong rebound and grow by 6.5 percent in the same period.
Advanced economies are increasingly sensitive to accumulated debt, it says, while policy makers in emerging markets like Brazil and China are grappling with how best to absorb the cash from rising commodity prices and investors without overheating their economies.
Progress in advanced economies will be slow coming, said chief IMF economist Olivier Blanchard. They are "in a fiscal hole, large debt, large deficit and these have to be slowly eliminated and that's going to take a long time."
Sub-Saharan Africa is expected to show the strongest regional progress, at 5.8 percent. The IMF reflected that confidence by releasing its new report Tuesday in South Africa, the continent's biggest economic engine.
Blanchard said capital flows to emerging market countries were "both a blessing and potentially a curse," providing cheap imports but the danger of overheating economies.
The influx was "a combination of the fact that the countries are doing well so their growth prospects are very good, and the fact that interest rates in advanced countries are not so high, they are very low, so there's a strong incentive to take your funds to emerging market countries."
China can help ease imbalances by raising the value of its currency, Blanchard said. The U.S. and other countries charge that China keeps its currency artificially low in order to maintain an export advantage.
"China is moving in the right direction and focusing increasingly on domestic demand, but we think it can be done faster," he said. "The yuan is undervalued, and it would be a good thing for China and the rest of the world if there was faster appreciation."
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