IMF Survey: Recession Loosens Grip But Weak Recovery Ahead

July 8, 2009

  • IMF upgrades 2010 forecast
  • But pace of recovery remains uncertain
  • Unprecedented policy action has improved financial market conditions

The global economy is beginning to pull out of a recession unprecedented in the post–World War II era, but stabilization is uneven and the recovery is expected to be sluggish, according to the IMF’s latest forecast.

Recession Loosens Grip But Weak Recovery Ahead

Construction in Jakarta, Indonesia: emerging economies expected to regain growth momentum later in 2009 (photo: Bagus Indahono/epa/Corbis)

WORLD ECONOMIC OUTLOOK UPDATE

Economic growth during 2009-10 is now projected to be about ½ percentage points higher than forecast by the IMF in April, reaching 2.5 percent in 2010, according to the World Economic Outlook Update, published on July 8. Among the major economies, growth rates have been marked up mainly for the United States and Japan.

“The good news is that the forces pulling the economy down are decreasing in intensity,” IMF Chief Economist Olivier Blanchard told a July 8 press briefing. “The bad news is that the forces pulling the economy up are still weak. The balance is slowly shifting, and this leads us to predict that, while the world economy is still in recession, the recovery is coming. But it is likely to be a weak recovery,” Blanchard said.

The IMF also released a separate update to its Global Financial Stability Report (GFSR). Financial conditions have improved, as forceful policy intervention has reduced the risk of systemic collapse and expectations of economic recovery have risen. “The unprecedented policy response in both the financial and macroeconomic domains has reduced the risk of systemic collapse and begun to restore market confidence,” José Vinãls, Director of the IMF’s Monetary and Capital Markets Department told the briefing. But many vulnerabilities remain and complacency must be avoided.

Recovery likely to be sluggish

Financial conditions have improved more than expected, owing mainly to public intervention, and recent data suggest that the rate of decline in economic activity is moderating, although to varying degrees among regions.

Despite these positive signs, the global recession is not over, and the recovery is still expected to be slow as financial institutions remain weak and credit intermediation impaired, support from public policies will gradually diminish, and households in countries that suffered asset price busts will rebuild savings.

Vinãls (l), Blanchard at press briefing:
financial conditions have improved more
than expected, owing mainly to public intervention
(IMF photo)

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