Jan. 25, 2011, 3:00 a.m. EST
U.S. to grow 3% while China, India surge: IMF
By Steve Goldstein, MarketWatch
WASHINGTON (MarketWatch) — The two-speed economic recovery will continue this year as the United States grows at a 3% clip, while emerging economies like China and India continue to surge, the International Monetary Fund said Tuesday in its latest forecast.
The IMF’s world economic outlook calls for global growth of 4.25% this year, up a quarter-point from the group’s October estimate, which the IMF mostly credited to a tax deal reached by President Barack Obama and congressional Republicans, as well as stimulus measures in Japan.
The U.S. forecast of 3% growth this year is up 0.7% from the IMF’s previous estimate, but the estimate of 2.7% growth in 2012 is 0.3% lower.
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President will call for a “responsible” effort to shrink the deficit, but won’t offer details on spending and taxes in Tuesday’s address.
The IMF’s view is more conservative than other projections. The Federal Reserve, for instance, sees the U.S. economy growing in a range of 3% to 3.6% this year, accelerating to 3.6% to 4.5% in 2012.
“More generally, signs are increasing that private consumption — which fell sharply during the crisis — is starting to gain a foothold in major advanced economies,” the IMF said. “Growth in emerging and developing economies remained robust in the third quarter, buoyed by well-entrenched private demand, still-accommodative policy stances and resurgent capital inflows.”
China is projected to grow 9.6% and India 8.4% in 2011, the IMF added. Brazil and Russia both are projected to grow 4.5%.
The IMF, as it’s done before, said the most “urgent requirements” are to overcome the euro-area sovereign and financial troubles and to repair and reform advanced economies’ financial systems.
Separately, the IMF warned that global financial stability is at risk as balance-sheet restructuring is incomplete and leverage is still high.
“The evident links between weak balance sheets of government and banking sectors have led to renewed pressures in funding markets in the euro area and widening strains,” the IMF said in its global financial-stability report. “While still contained to the euro area, the adverse interaction between the sovereign and banking risks in a number of countries has intensified, leading to disruptions in some funding markets,”
The flip side of the euro-zone’s troubles — namely, the fund flows into emerging markets — also poses risks.
“So far, evidence of asset-price bubbles and credit booms is still isolated to a few countries in a few sectors, but equity inflows and carry-trade activity are generally quite strong and these flows have to be watched carefully, particularly where leverage may be involved,” the report said.
Steve Goldstein is MarketWatch’s Washington bureau chief.
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