The IMF upgraded its estimates for 2010 GDP growth in almost every country and region in the world based on its belief that the recession is receding rapidly into the past.
Among the more interesting forecasts in its World Economic Outlook are the ones for the US and China. The IMF was more aggressive in increasing the rate of growth in the US compared to its July estimates than it was in moving up the number for the world’s most populous nation.
The IMF now expects China’s 2010 GDP to expand at 9%, up .5% from the July figure. The US economy will grow 1.5%, up .7% from the figure the IMF posted three months ago. The US is clearly growing much more slowly than China is, but the agency no longer expect America’s economy to hug a flat line. A similar comparison holds true for India. The IMF downgraded its expansion forecast for 2010 by .1%.
The IMF’s warnings about the risk to growth next year parrot those of many other organizations and economists. The expansion of most national economies depends on stimulus packages which have to stay in place while organic growth is still extremely weak.
The natural by-product of accepting the IMF’s advice is an expansion of soveign debt which in essence raises the odds that interest rates will rise due to increased national borrowing. In addition, the tax burden of pushing debt back down will be great enough to undermine growth two or three years from now.
The IMF’s prescription for keeping the global economy from moving back into recession may be correct, but it will force most nations to pay a significant financial price very soon.
Douglas A. McIntyre
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