The International Monetary Fund (IMF) today said global economic growth has turned positive after a deep recession but warned that recovery would be slow.
The IMF raised its forecast for global growth next year as more than $2 trillion in stimulus packages and demand in Asia pull the world economy out of its worst recession since World War II.
The Washington-based IMF said the economy will expand 3.1 per cent in 2010, more than a July forecast of 2.5 per cent. China's economy will grow 9 per cent and India 6.4 per cent. That compares with growth of 1.7 per cent in Japan, 1.5 per cent in the US and 0.3 per cent in the euro region.
Days after President Barack Obama and other leaders declared that the Group of 20 is now the main forum for steering the global economy, the forecasts show emerging Asian nations powering the return to growth.
The IMF, whose members are gathering in Istanbul for next week's annual meeting, warned that the recovery would be "weak by historic standards" and said restoring banks to health remains a priority.
"The global economy appears to be expanding again, pulled by the strong performance of Asian economies and stabilisation or modest recovery elsewhere," the IMF said in its semi-annual World Economic Outlook. Still, the rebound will be "sluggish, credit constrained and, for quite some time, jobless".
The world economy will contract 1.1 per cent this year, less than the 1.4 projected in July, the IMF said. So-called advanced economies including the US, Germany and Japan will continue to lead the slump, shrinking 3.4 per cent, it forecast. As a bloc, emerging economies will expand 1.7 per cent this year.
With the economy recovering, the key challenge for policy makers next year will be deciding when to start raising interest rates and unwinding emergency lending to banks, the IMF said.
While a premature exit could pose a "significant" threat to the recovery, waiting too long could stoke asset bubbles in faster growing emerging economies. "The recovery has started," Olivier Blanchard, the IMF's chief economist, said today at a news conference in Istanbul. He said while "financial markets are healing," the figures "should not fool governments into thinking that the crisis is over".
In the richest nations, conditions can remain accommodative for an "extended" period because inflation "is likely to remain subdued as long as output gaps remain wide," the IMF said. In some emerging economies, conditions may need to be tightened earlier and more flexible exchange rates could help smooth the process.
"Some of these economies are again seeing large asset- price increases in response to low interest rates, raising the danger of new asset-price bubbles," the IMF said in the report.
Other risks to the recovery include rising oil prices and a "virulent" return of the H1N1 flu, the IMF said.
Bloomberg