IMF warns global recovery might not be sustained

By Agence France-Presse, Updated: 10/6/2010

Rich and emerging economies must dramatically change the way they trade with each other or risk throttling the global economic recovery, the International Monetary Fund warned on Wednesday.

In its latest economic outlook, the IMF said growth would slow more than previously expected in 2011, as the United States, Europe and Japan continue to struggle and China remains overly dependent on exports.

The recovery is "neither strong nor balanced and runs the risk of not being sustained," warned Olivier Blanchard, the IMF's chief economist.

Painting a picture of a faltering developed world -- where business is still struggling to pick up where government crisis spending left off -- the IMF predicted global growth would be pared back to 4.2 percent next year.

That is less than the 4.8 percent growth expected this year and 0.2 point below the IMF's July forecast for 2011.

While restocking had helped short-term growth in the United States, Japan and some parts of Europe, the IMF said advanced economies were still reliant on dwindling government spending.

"For the past year or so, inventory accumulation and fiscal stimulus were driving the recovery. The first is coming to an end. The second is slowly being phased out," the IMF said in its twice-yearly World Economic Outlook.

The IMF slashed its US growth forecast for 2011, to 2.3 percent, lopping 0.6 points off its July forecasts.

The growth forecast was also trimmed for this year, down 0.7 points to 2.2 percent, with warnings of "a weak recovery in coming quarters."

The IMF recommended that some central banks, like the US Federal Reserve, continue their ultra-loose monetary policies, but warned the impact of such policies would now be limited.

"Not much more can be done, and one should not expect too much from further quantitative or credit easing."

Increased exports must take up the slack, it added.

"Many advanced economies, most notably the United States, which relied excessively on domestic demand, must now rely more on net exports."

Meanwhile the IMF said that rich countries, many of which are heavily in debt, would have to trim spending and balance their books in the medium term.

"Fiscal stimulus has to eventually give way to fiscal consolidation, and private demand must be strong enough to take the lead and sustain growth."

There was a particular warning for Europe, with "severe external financing constraints" forecast for debt-laden Greece, Ireland, Portugal and Spain.

The picture could not be more different for emerging markets like India and China, where growth continues, but is limited by an over-dependence on exports to Europe, Japan and the United States that must be addressed.

"Emerging market economies with large current account surpluses must accelerate rebalancing. This is not only in the world economy's interest, but also in their own."

Wading into sensitive political waters, the IMF said China must allow its currency to strengthen to boost domestic demand and reduce its reliance on exports.

"To the extent that a stronger Chinese currency eases this process, other surplus countries in the region could follow suit, which would facilitate the needed shift towards domestic sources of growth," the IMF said.

Emerging markets are expected to expand at a rate of 7.1 percent this year and 6.4 percent in 2011.

Advanced economies are expected to grow more slowly, at 2.7 percent in 2010 and 2.2 percent next year.

The WEO report came ahead of Friday's opening of a two-day annual meeting of the IMF, where its 187 member nations are set to focus on a looming currency war and the dangers of protectionist trading policies.

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EUROPE: 'Coldest winter in 1,000 years' on its way...

Coldest winter in 1,000 years on its way

After the record heat wave this summer, Russia's weather seems to have acquired a taste for the extreme.

Forecasters say this winter could be the coldest Europe has seen in the last 1,000 years.

The change is reportedly connected with the speed of the Gulf Stream, which has shrunk in half in just the last couple of years. Polish scientists say that it means the stream will not be able to compensate for the cold from the Arctic winds. According to them, when the stream is completely stopped, a new Ice Age will begin in Europe.

So far, the results have been lower temperatures: for example, in Central Russia, they are a couple of degrees below the norm.

“Although the forecast for the next month is only 70 percent accurate, I find the cold winter scenario quite likely,” Vadim Zavodchenkov, a leading specialist at the Fobos weather center, told RT. “We will be able to judge with more certainty come November. As for last summer's heat, the statistical models that meteorologists use to draw up long-term forecasts aren't able to predict an anomaly like that.”

In order to meet the harsh winter head on, Moscow authorities are drawing up measures to help Muscovites survive the extreme cold.

Most of all, the government is concerned with homeless people who risk freezing to death if the forecast of the meteorologists come true. Social services and police are being ordered to take the situation under control even if they have to force the homeless to take help.

Moscow authorities have also started checking air conditioning systems in all socially important buildings. All the conditioners are being carefully cleaned from the remains of summer smog.