World Still Needs to Fix Key Economic, Financial Problems

Global output forecast to expand by about 4½ percent in 2011, slight upward revision

Advanced economies' growth to slow to 2.5 percent from 3.0 percent last year

Emerging markets to see average 6.5 percent growth, down from 7.1 percent in 2010

Global financial stability still at risk, needs urgent and comprehensive response

The IMF released updates to its two flagship analyses, the World Economic Outlook (WEO) and the Global Financial Stability Report (GFSR), showing that the world is in a two-speed economic recovery, with advanced economies still recovering slowly and emerging markets and even some low-income countries relatively buoyant. The IMF will release an update to its Fiscal Monitor in Washington on January 27.

“Nearly four years after the onset of the largest financial crisis since the Great Depression, global financial stability is still not assured and there remain significant policy challenges to be addressed,” the GFSR, released in Johannesburg on January 25, said.

Global output is projected to expand by about 4½ percent in 2011 (see table), an upward revision of about a ¼ percentage point relative to the October 2010 WEO. IMF economists said this reflects stronger-than-expected activity in the second half of 2010 as well as new policy initiatives in the United States that will boost activity this year.

Overall, advanced economies are projected to grow by 2.5 percent in 2011, with emerging and developing economies seeing growth of 6.5 percent, against 7.1 percent last year. Growth in sub-Saharan Africa will climb to 5.5 percent, from 5.0 percent in 2010.

Need for rapid action

“The most urgent requirements for robust recovery are comprehensive and rapid actions to overcome sovereign and financial troubles in the euro area and policies to redress fiscal imbalances and to repair and reform financial systems in advanced economies more generally. These need to be complemented with policies that keep overheating pressures in check and facilitate external rebalancing in key emerging economies,” the WEO Update said.

Olivier Blanchard, the IMF’s Chief Economist, identified two key issues for the global economy at this point.

“First, how emerging market countries handle capital inflows. High growth in emerging market countries, together with low interest rates in advanced countries, has triggered strong capital flows to both Latin America and Asia,” said Blanchard, speaking ahead of the joint release at the Sandton...