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IMF director sees strength in '07

January 08, 2007|From Bloomberg News

The global economy will remain strong this year as Europe and Asia compensate for a slowdown in the U.S., International Monetary Fund Managing Director Rodrigo de Rato said Sunday.

"We are moving into another year of strong growth," De Rato told reporters in Basel, Switzerland. "We certainly see strong growth in Europe, a continuation of growth in Japan, and we see very strong growth in many emerging economies."

Central banks in Europe and Japan are poised to raise interest rates this year as rising business confidence, investment and hiring stoke inflationary concerns. While a housing slowdown is cooling growth in the U.S., unemployment in Germany last month dropped the most since 1990 and business confidence in Japan rose to a two-year high.

The IMF head said a U.S. slowdown wouldn't be severe enough to derail the global economy.

A soft landing would be "of benefit not only for the U.S. but also for the world economy," De Rato said.

The Washington-based lending organization in September forecast that the global economy would expand 4.9% this year, down from 5.1% in 2006. De Rato on Sunday declined to say whether he planned to revise those projections.

Investors and executives should nevertheless avoid "complacency" as "ample liquidity" in the global economy helps boost asset prices and reduces the price of risk, De Rato said. He also said the price of oil, which has gained almost 25% in the last two years, posed an inflationary risk.

The European Central Bank probably will raise its key lending rate to 3.75% from 3.5% by the end of the year, according to the median of 23 forecasts in a Bloomberg survey of economists published Jan. 5. Economists expect the Bank of Japan to take its benchmark rate to 1% by the end of 2007 from 0.25% at present, according to a survey published Dec. 21.

In the U.S., the Fed probably will keep its benchmark at 5.25% this quarter before cutting it to 4.75% by the end of 2007, according to the median of 74 forecasts in a separate survey in December.

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