World economy is roaring, says IMF

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May 01, 2006/busrep




Johannesburg - \"It would be fair to say the world has never had it so good,\" said International Monetary Fund (IMF) economic counsellor Raghuram Rajan at the launch the organisation\'s bi-annual World Economic Outlook in Washington.

The report revealed that the global economy was roaring along - in the face of a multi-year rise in oil prices and despite financial imbalances, such as the ballooning current account deficit in the US. An important reason, said Rajan, was \"the greater flow of goods, services, and capital across the world, a phenomenon known as globalisation\".

Growth is strong in all regions, including sub-Saharan Africa, where growth has risen above its historical trend line.

The only failure on the continent is Zimbabwe, where the forecasts are for economic shrinkage of 4.7 and 4.1 percent in the next two years.

The IMF has edged up its already favourable growth projections for world output this year and next, since it published its World Economic Outlook in September.

The organisation is now predicting growth of 4.9 percent in 2006 and 4.7 percent in 2007.

The buoyant economies of China, India and Russia are an important ingredient in the global success story. The original projection for China, which has boosted global growth by a 0.1 percentage point every year since 1992, was revised upward by 1.3 percent this year and by 1 percent for next year.

Growth there is now forecast at 9 percent and 9.5 percent, respectively. For India, they have been hiked 1 and 0.5 percentage points to 7.3 and 7 percent. And, in Russia, they are up 0.8 percentage points in both years to 6 and 5.8 percent.

Equally good news is that a strong expansion is expected in sub-Saharan Africa. After 5.5 percent growth in 2005, the IMF is projecting a rise of 5.8 percent this year - the highest in over three decades - and 5.7 percent next year. The revision for this year is fractionally down and marginally up for next year.

Projections for the region are boosted by a 26 percent surge in Angola, followed by more than 20 percent next year. Also among the top performers are Ghana, where the forecasts for both this year and next are 6 percent, and Nigeria (6.2 and 5.2 percent).

\"In oil-producing countries, growth has been spurred by the coming on stream of new capacity in recent years,\" the IMF said.

And \"among oil importers, higher metal prices have supported growth in countries such as South Africa and Zambia, while growth in excess of 7 percent in Ethiopia, Mozambique, and Sierra Leone reflects the continuing positive effects of earlier reforms\".

Reforms implemented in the second half of the1990s in a number of countries have started to pay dividends, with investment ratios importantly reversing their previous downward trend.

Growth for South Africa is forecast at 4.3 this year and 4.1 percent next year.

Globally, industrial production has picked up markedly from mid-2005; the services sector remains resilient; global trade growth is close to double digits; consumer confidence and labour market conditions are strengthening; and business confidence, an indicator of future growth, is rising.

The US remains the engine of growth, while the Japanese expansion is well-established and there are signs of a sustained recovery in Europe. And growth in most emerging and developing countries remains solid.

Benign financial markets, where risk premiums and volatility have been low, had created \"an unusually favourable conjuncture\", the report said, providing an opportunity to deal with global imbalances.

Another IMF publication, the April 2006 Global Financial Stability Report, said financial institutions and markets seemed relatively well-placed to manage changes, especially given the marked strengthening in their balance sheets in recent years.

\"Emerging market countries have taken advantage of current conditions to improve debt structures. With strong inflows to emerging markets, many have already pre-financed their borrowing needs for 2006.\"

In the major industrial countries, corporate profits are strong and investment is picking up.

\"Given this favourable environment, equity prices have risen significantly, particularly outside the US, with some markets looking increasingly richly valued. Property prices have been more diverse, although signs of a slowdown have increased in some cyclically advanced countries, notably the US.\" The report pointed out that risks of inaction on global imbalances had risen over time.

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