IMF raises global economic growth forecast

Posted on July 26, 2007
Filed Under International News |

The International Monetary Fund raised its global economic growth forecasts on Wednesday. In its forecast, the IMF mentioned increased expansion in China, India, and Russia; and also some stability in the United States despite the risks it still faces in its housing market The IMF updated its global growth forecast to 5.2 percent for both 2007 and 2008 (up from a forecast of 4.9 percent).

China’s 2007 growth projection was also raised to 11.2 percent (from a previous forecast of 10 percent). IMF’s research department reported strong growth in exports and investments, along with some growth in its domestic consumption (a positive sign that China’s economy may finally be starting to shift from excessive reliance on exports). Together, China, India, and Russia account for more than half the year’s 5.2 percent growth projection.

The U.S. economic performance will still be pulled back by its housing downturn. Nevertheless, business investment is recovering, and consumer demand seems to be holding up, the IMF added.

As for Canada, economic growth will be stronger than expected this year, but weaker in 2008. Those forecasts probably came in wake of consumer spending in Canada being much stronger than expected. The news that also sent the loonie flying past 96 U.S. cents, and raised expectations of further interest rate increases, which in turn took the stock markets for a dive.

All in all, from the IMF report, it is evident that Canadian’s aren’t the only ones facing the possibility of higher interest rates. With the rest of the world’s (mainly China, India, and Russia) strong growth, and supply constraints, inflation poses a much greater risk globally - especially with high energy prices, rising commodities and food prices, and more pressure in labour markets. It is likely that most central banks, including the Bank of Canada, will need to further tighten monetary policy.

Comments