The United States may still have the world’s largest economy, but it is no longer the economic engine the world looks to for pulling out of a recession – at least not this time.
The International Monetary Fund (IMF) on Wednesday offered a slightly rosier picture for global economic growth through the end of the year than it predicted in July. That outlook is based on robust growth in China and other emerging economies like Brazil and despite lackluster performances by the world’s advanced economies – like the US.
Revising upward – if ever so slightly – its forecast for global economic growth for the year, the IMF now predicts an annual growth rate of 4.8 percent. The July outlook was for 4.6 percent annual growth.
The IMF’s report comes out ahead of this weekend’s fall meeting of the IMF and World Bank in Washington.
The slightly improved forecast for the world economy could not offset other, more worrisome signs that stand out in the IMF’s quarterly prognostications:
• Growth in the world’s wealthy countries stands out as particularly weak when compared with that in other post-recession recoveries. According to the IMF, the US economy will grow 2.6 percent this year – considerably lower than the 3.3 percent annual growth rate the IMF predicted for the US in July. Forecasts for Western Europe and Japan are even bleaker.
• More than 210 million people are officially unemployed around the world – a jump of more than 30 million since the global recession began. That number won’t come down much unless the world economy continues to grow, the IMF says – and that will require stronger growth in advanced economies, which means revved-up consumer spending.
• Growth rates are expected to fall back across the board next year: Worldwide economic growth will slip slightly to 4.2 percent, the IMF says, while China’s growth will dip less than a percentage point to 9.6 percent in 2011. The advanced economies are expected to see growth fall from an already-lackluster 2.7 percent this year to 2.2 next year – with struggling Japan predicted to achieve only 1.5 percent growth in 2011.
The IMF’s World Economic Outlook singles out rising budget deficits as a key risk for the global recovery. It calls on countries piling up debt to reverse course and quickly devise plans for reducing deficits.
But the report also emphasizes growth in exports by the world’s advanced economies as a necessary element in sustained global growth. That point raises the debate over currency rates – what some economists and leaders bluntly call “manipulation” – that is currently raging between China and the world’s advanced economies in particular.
Members of Congress and some European officials accuse China of undervaluing its currency as a means of keeping its exports artificially cheap – and giving imports into China a higher price tag.
Obama administration officials have until recently preferred closed-door diplomacy for addressing the currency issue with the Chinese, but signs are growing of a change in the “speak softly” approach. On Wednesday, US Treasury Secretary Timothy Geithner said in a Washington speech that countries pursuing a policy of undervaluing their currency risked a “dangerous dynamic” that could ultimately threaten the global recovery.
“This problem exposes once again the need for an effective multilateral mechanism to encourage economies running current-account surpluses to abandon export-oriented policies, let their currencies appreciate, and strengthen domestic demand,” Secretary Geithner said in a morning speech at the Brookings Institution.
The currency debate is expected to carry over into both the meeting this weekend with the IMF and World Bank and the Group of 20 summit set for South Korea next month. German Economics Minister Rainer Bruederle said Wednesday in Berlin that currency polices would be a key topic at the G20 gathering.