The International Monetary Fund says in a new report that the global economic outlook is improving. Despite a marked slowdown in Europe, the global lending institution projects the world economy will grow 3.5 percent this year, a slight improvement from its earlier forecast in January. Growth in developing countries remains brisk, but significant risks remain.
The Fund says the U.S. job market is starting to show signs of life, factory output is up sharply from recessionary lows and American consumers are spending more.
There’s also good news from Europe, where coordinated efforts by the European Union may have eliminated the threat of a Greek default and lowered borrowing costs in other high debt countries.
But Fund chief economist Olivier Blanchard says the global economic picture is complicated. “Things have quieted down since but an uneasy calm remains. One has the feeling that at any moment, things could well get very bad again,” he said.
Analysts point to Spain as a potential risk. Yields for Spanish bonds have doubled since March on speculation that Europe’s fourth largest economy might seek financial support. But William Hobbs from VP Research says that’s an unlikely scenario. “Spain is not Greece. Spain has a viable, albeit open-to-reform economy, and they have globally-respected businesses and generally an economy which we think will eventually see it through these dark times to come,” he said.
The Fund sees promise in developing economies, particularly those in Asia, which are projected to grow 7.5 percent this year. China’s growth will likely slow slightly to 8.2 percent. But the pace is expected to accelerate in the Middle East and North Africa as oil prices continue to rise.
Improvements are also seen in sub-Saharan Africa and South Africa, where economic output is likely to expand 5.5 percent. Still, Blanchard says he sees reason for caution. “For many countries, the challenges come mainly from the outside in the form of lower exports to advanced countries because of the low growth there, of the volatility of commodity prices which affects both exporters and importers and the high volatility of capital flows,” he said.
The report comes as the 187-nation institution and its sister lending organization, the World Bank, prepare to hold annual spring meetings in Washington.