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IMF predicts world growth will be strongest since 1973

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by Daily Commercial News last update:Jul 9, 2008

The world economy this year should post its best growth in three decades even though oil prices are up sharply and economic activity in the United States will probably be slower than previously thought.

Canadian economy will grow 3.1% next year

WASHINGTON

The world economy this year should post its best growth in three decades even though oil prices are up sharply and economic activity in the United States will probably be slower than previously thought.

Those were some of the assessments in the International Monetary Fund’s latest World Economic Forecast.

After expanding by 3.9 per cent in 2003, the global economy is now projected by the IMF to grow by five per cent in 2004.

That is a better forecast for this year than the 4.6 per cent increase estimated in April. Should the new projection prove accurate, it would mark the strongest growth since 1973, an IMF spokesman said.

Global growth has been helped by factors that include rising corporate profitability, improved stock markets, strong housing markets and gains in employment, the agency said.

The revised projection for 2004 is encouraging for an economy battered by recession, terrorist attacks and war. But rising oil prices are still a concern, the IMF said.

The IMF predicted the U.S. economy will grow by 4.3 per cent this year, compared with an earlier estimated increase of 4.6 per cent. Even so, the revision would represent the best showing since 1999 and an improvement over the three per cent gain in 2003.

The Canadian economy would grow by 2.9 per cent this year, the IMF said, up slightly from an earlier estimate of 2.6 per cent in April, and up from the two per cent growth rate the economy turned in last year. It predicts growth will reach 3.1per cent next year.

The health of the U.S. economy is a prominent issue in the presidential campaign.

U.S. President George W. Bush credits his tax cuts for helping the economy rebound from the 2001 recession. His Democratic challenger John Kerry contends those cuts mainly have helped the wealthy, squeezed the middle class and put the government deeper into debt.

The U.S. economy grew briskly in the first quarter of this year before slowing over the next three months. Federal Reserve chairman Alan Greenspan has blamed that largely on high oil prices and said the economy has since gained some traction.

“This is a soft patch, not a sink hole,” the IMF’s chief economist, Raghuram Rajan, said of the slowdown.

For 2005, the global economy is expected to see slower growth, expanding by 4.3 per cent, compared with the 4.4 per cent estimate from the IMF in April.

“Looking forward, the global expansion—while still solid— will therefore likely be somewhat weaker than earlier expected,” the IMF said.

“The balance of risks has shifted to the downside with further oil price volatility a particular concern.”

The IMF’s forecasts are based on an assumption that oil prices would average around $37.25 a barrel this year and next.

Even with oil prices in the $50 range, “We don’t think the effect will be huge,” Rajan said.

He said that big developed countries, including the United States, are better now than in the past with dealing with oil price jumps and that central banks have gained greater credibility in combating inflation. Adjusted for inflation, oil prices are still about $30 a barrel below the level reached in 1981.

Nonetheless, U.S. Treasury Secretary John Snow raised concerns about oil prices at last Friday’s meeting of financial officials from the world’s richest countries.

The IMF is predicting the U.S. economy will moderate in 2005, increasing by 3.5 per cent. That compares with an April projection of 3.9 per cent.

For Japan, the IMF forecasts economic growth of 4.4 per cent this year, slowing to 2.3 per cent next year. Both estimates are higher than previous projections for each year made in April.

China should grow by 7.5 per cent, down from an earlier eight per cent estimate.

In Europe, Germany is projected to see an increase of two per cent in economic growth this year, up from a 1.6 per cent growth estimate made in April. The IMF also boosted 2004 growth projections for France and Italy to 2.6 per cent and 1.4 per cent, respectively.

Britain is expected to see its economy expand by 3.4 per cent this year, slightly less than previously thought.

The Canadian Press/Associated Press

last update:Jul 9, 2008

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