IMF Says Double-Dip Recession Unlikely

As reported on by Ben Rooney, October 6, 2010.

The International Monetary Fund said a double dip recession is unlikely, but it expects growth in developed economies to be outpaced by emerging powerhouses.

In the first two chapters of its World Economic Outlook, the IMF estimated that global economic activity will expand at a rate of 4.8% this year, before slowing to 4.2% in 2011.

Its projections are generally in line with what many economists expect, the IMF said, adding that its forecast could be revised lower depending on how conditions develop.

Olivier Blanchard, director of the IMF’s research department, said the global economy is not likely to relapse into recession as painful as the one it recently emerged from.

“That being said, the recovery is slowing down,” Blanchard said in an online interview. “Some of the forces behind the recovery up till now are phasing out.”

Spending and investment are gradually taking the place of waning stimulus programs, he said, particularly in developing countries. “In advanced countries, consumption and investment are not very strong,” he said.

The IMF expects advanced economies to have a combined growth rate of 2.7% this year, and 2.2% in 2011. Activity in more established nations, including the United States, could slow “noticeably” over the coming months before activity picks up in the second half of next year, the report said.

By contrast, emerging economies are forecast for growth of 7.1% this year and 6.4% in 2011. Developing economies, according to the IMF, range from emerging powerhouses such as China and India, to impoverished and war torn nations like Haiti and Afghanistan.

In addition to fading economic stimulus measures, Blanchard said the recovery in advanced economies is slowing because of the “scars left by the crisis.” These include high unemployment, low levels of consumer confidence, difficult credit conditions and weak housing markets.

“All these things are breaks to strong consumption and strong investment,” he said.

The estimates come ahead of the annual meetings of the International Monetary Fund and the World Bank this weekend in Washington. U.S. Treasury Secretary Tim Geithner will attend the meeting, along with finance officials and central bankers from around the world.

In its report, the IMF said most advanced economies and some emerging ones still need to make “major adjustments” to get their financial matters in order.

Policymakers in these countries should take steps to “stabilize and subsequently reduce high public debts, and repair and reform their financial sectors,” the report said.

The IMF said lawmakers in big economies should start working next year to create plans that will lead to “sustainable fiscal positions” by the end of the decade. But central banks “should stay highly supportive in most of the advanced economies” to help safeguard against any downturns as stimulus fades.

If economic conditions weaken significantly, the IMF said monetary policymakers may need to use further “unconventional measures” to revive growth.