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IMF Says World Economic Recovery Is Slowing

IMF Chief Economist Olivier Blanchard

The world's economy continues its recovery from the financial crisis but remains in a fragile condition.

That's according to the International Monetary Fund (IMF), which has released its biannual "World Economic Outlook" in Washington.

The IMF lowered its global growth forecast for 2011 to 4.2 percent, down from a July projection of 4.3 percent.

For 2010, it expects the world economy to grow 4.8 percent, up from an earlier forecast of 4.6 percent.

The fund said the risk of a double-dip recession -- meaning when economic growth recovers and then falls back into a second period of sustained negative growth -- was very low. But IMF Chief Economist Olivier Blanchard said the world's economic growth overall was slowing.

"The recovery is slowing down. What happens is that some of the forces behind the recovery until now are phasing out, be it inventory investment or fiscal stimulus," Blanchard said. "What's taking over is consumption and investment. And in advanced countries, consumption and investment are not very strong."

The IMF said a complete recovery from the global financial meltdown of the last two years was still not assured, because corrective policies have not had long to allow for a smooth transition from public support to private demand.

It predicted that emerging economies and developing markets would grow nearly three times faster than rich countries next year, and said that China's growth would drive many economies, especially countries that export commodities.

It said growth in emerging market countries would slow to 6.4 percent in 2011, down from 7.1 percent this year. Advanced economies will expand just 2.2 percent next year, down from the 2.7 percent the IMF expected in 2010.

Slower Recovery In Rich Countries

Although global economic growth is set to hit 4.8 percent, growth in the 16 eurozone countries is only expected to reach 1.7 percent.

In Germany, Europe's largest economy, the IMF predicted a "moderate" recovery and a drop from 3.3 percent growth in 2010 to 2.0 percent in 2011. It attributed the slowdown to weak growth expectations from Germany's trading partners.

It said progress toward recovery would remain "gradual and uneven" among European countries. Blanchard said the recovery in richer nations was weak "because of the scars left by the crisis."

"If you look at consumers, they were spending like crazy [before]. Their saving rate had gone down to near zero or they had a lot of debt, so they now have to save a lot, which means that consumption is relatively weak," Blanchard said.

"The financial system is not in great shape, which means that some of the firms have a hard time borrowing, the housing market is in shambles -- the housing stock, the stock of unsold houses is very large. So all these things are brakes to strong consumption [and] strong investment," he added.

The fund also warned of potential "spillover" problems from Greece, Ireland, Portugal, and Spain, which are all carrying heavy debt.

Rich countries need to finish repairing their battered financial sectors and begin shrinking bloated budgets, the fund said.

The IMF said budget adjustments in debt-ridden advanced economies need to begin in earnest next year, but if growth threatens to slow more than expected countries with fiscal room should postpone spending cuts.

with agency reports

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