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IMF says global economy is strengthening

January 21, 2014|By Don Lee

WASHINGTON -- The global economy is gaining momentum and should post its best growth in three years, thanks largely to a strengthening U.S. economy, says the International Monetary Fund.

Joining others such as the World Bank that have recently upgraded forecasts for global growth, the IMF's latest outlook, issued Tuesday, projects the U.S. economy expanding at a healthy 2.8% rate this year. That's up from an estimated 1.9% growth pace in 2013 and 0.2 percentage point higher than its last forecast in October.

"U.S. growth appears increasingly solid," said Olivier Blanchard, the IMF's chief economist.

The Washington-based fund also sharply upgraded its growth forecast for Britain and Japan, two other major advanced economies. Combined, rich-nation economies will grow at a 2.2% pace this year, from an estimated 1.3% in 2013, the IMF said, helping fuel a 3.7% increase in overall economic output for the world, from a 3% rate in 2013.

But "one should not be too happy," Blanchard said in a conference call with reporters. "It is still a weak and uneven recovery."

Blanchard's caution may reflect the fact that IMF forecasts in the recent past, like those of many economic experts, have tended to be too glowing. And there are some significant risks and uncertainties clouding the outlook.

One of them is the Federal Reserve's shift from increasing monetary stimulus to withdrawing it. The Fed last month made a first cut of its signature bond-buying program, and the central bank is expected to continue the gradual reduction of the stimulus at its policy meeting next week.

So far, the Fed's actions and stated plans about bond purchases and its short-term interest rate policy have gone down fairly well in financial markets. And Blanchard gave a cautious endorsement Tuesday, saying the framework and timing of the Fed's so-called exit strategy seemed "reasonable." But he said challenges lie ahead, noting, for example, that the Fed's withdrawal of monetary support is linked to an unemployment rate level that has become more difficult to interpret because of an exodus of American workers from the labor force.

Fed officials must be clear in their communications, he said, or there could be a repeat of shocks to markets internationally. When the Fed hinted at a pullback of bond purchases last spring, it triggered a sharp fall in currencies and stocks in many emerging markets.

As a group, emerging economies should benefit in trade from the faster growth of advanced nations, the IMF said.

The fund raised its outlook for China, the world's second-largest economy, saying that the Asian nation would expand at a robust 7.5% rate this year -- very close to last year's level and 0.3 percentage point higher than its forecast in October.

IMF economists, however, lowered their growth projections for Russia and Brazil, two other large developing countries. They also warned about the risk of deflation in the Eurozone, which is expected to break out of recession and expand 1% this year, with Germany leading the way.  

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