By: Mike Campbell
In its most recent World Economic Outlook report, the International Monetary Fund has revised its forecast for world growth in 2010 upwards. The language used by the IMF was clearly cautious, but their view is that the world economy will grow by 4.2% this year. The Fund warns that the recovery is not yet secure and consequently counsels its Member States that the financial stimulus measures should remain in force for the rest of the year. The IMF comments that high levels of government debt need to be addressed and points out that the recovery is “tepid” in many developed economies. For this reason, the report says that a general reduction in national debt should be delayed until 2011; however nations such as Greece need to address their debt issues without delay.
Mindful, no doubt, of the harmful speculation surrounding the Greek bailout and its effect on the value of the Euro, the IMF have called on its members to be transparent with their citizens over their debt reduction plans: "There is a pressing need to design and communicate credible medium-term fiscal consolidation strategies. These should include clear time frames to bring down gross debt-to-GDP ratios over the medium-term, as well as contingency measures if the deterioration in public finances is greater than expected."
The report voiced concerns that the volume of bank lending was still undesirably low. This could be due to the fact that banks are trying to re-establish their capital bases after the record losses of 2007 and 2008 when the financial crisis was at its height. It pointed out that central banks have little room for further manoeuvre should the crisis deepen since interest rates are at, or near, historic lows in many nations.