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IMF: Global recession is ending

(IMF)
Updated: 2009-11-27 08:58

The global recession is ending, but the recovery will be slow, the International Monetary Fund said in its latest World Economic Outlook (Full report), warning against premature exit from accommodative monetary and fiscal policies.

After a deep global recession, economic growth has turned positive, as wide-ranging public interventionhas supported demand and lowered uncertainty and systemic risk in financial markets. Nonetheless, the recovery is expected to be slow, as financial systems remain impaired, support from public policies will gradually have to be withdrawn, and households in economies that suffered asset price busts will continue to rebuild savings.

Risks to the outlook remain on the downside. Premature exit from accommodative monetary and fiscal policies is a particular concern because the policy-induced rebound might be mistaken for the beginning of a strong recovery. The key requirement remains to restore financial sector health while maintaining supportive macroeconomic policies until the recovery is on a firm footing.

At the same time, policymakers need to begin preparing for an orderly unwinding of extraordinary levels of public intervention. Policies also need to facilitate a rebalancing of global demand, because economies that experienced asset price busts will need to raise saving rates, and there is a need to bolster potential growth in advanced economies, which has suffered as a result of the major financial shocks. Rising unemployment and setbacks to progress in poverty reduction pose social challenges that also must be addressed.

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Global growth is projected to reach about 3 percent in 2010, following a contraction in activity of about 1 percent in 2009. During 2010–14, global growth is forecast to average just above 4 percent, appreciably less than the 5 percent growth rates in the years just ahead of the crisis. Financial and corporate restructuring will continue to exert considerable downward pressure on activity, and wide output gaps will help keep inflation at low levels. Demand is likely to be dampened by the need in many advanced economies to rebuild savings. Downside risks to growth are receding gradually but remain a concern.