International Monetary Fund (IMF) Raises Global Economic Growth Forecast

According to a recent report produced by the IMF, Asia is said to be driving global economic growth. This morning, the International Monetary Fund (IMF) raised its forecast for global growth from 4.2% to 4.6%. Representatives from the IMF noted that the world economy grew strongly in the first part of this year, growth that was largely attributed to robust economic growth in Asia. Of note, the IMF took a unique position with the UK, revising down the UK's 2010 growth forecast. The IMF also revised the UK's 2011 growth forecast from 2.5% to 2.1%.

In its report, the IMF argued that concerns over the sustainability of government finances in the developed world, especially Greece and others in Europe, continue to threaten the global economic recovery. While governments continue to take measures to trim deficits, the IMF warned all governments to avoid making drastic cutbacks too quickly. In recent weeks, a number of governments in Europe have introduced austerity measures to cut deficit levels. While these measures are positive, further credible and decisive policy action is needed to resume progress on financial stability and keep the economic recovery on track. In the report, the IMF noted that European banks in particular continued to be affected by concerns about government debt and continued to be hesitant to lend to each other. This reduction in credit could potentially undermine the global economic recovery if widespread.

Of note, the IMF significantly raised its 2010 growth forecast for Brazil - to 7.1% from 5.5% - as well as for East Asian tiger economies such as South Korea and Taiwan. The agency also slightly reduced its 2010 forecast for France, as well as its 2011 forecasts for the Eurozone, Japan, China and Canada. Meanwhile, in a separate report, the IMF called on the US to do more to tackle its budget deficit. The report argued that a more ambitious adjustment to stabilize debt was needed. The report argued that the US should target a surplus of 0.75% of GDP by 2015, compared with a projected deficit of 11% this year - a Herculean task. To assist, a number of tax-raising options were suggested, including cuts in tax credits, particularly for mortgage interest payments; higher taxes on energy; a national consumption tax (like VAT); as well as a financial activities tax. The IMF also urged Washington to do more to deal with the projected growing deficit in the social security budget. Among the various negatives for the US economy, the IMF identified continuing weak consumer spending; long-term unemployment; a possible double dip in the housing market; the failure of hundreds of small banks due to losses in commercial real estate; tight financing conditions, especially for smaller firms; and a possible spillover from the European debt crisis as major market risks.