Development & Aid, Economy & Trade, Global, Global Geopolitics, Headlines

FINANCE: IMF Predicts Rosy Outlook for Developing Nations

Emad Mekay

WASHINGTON, Apr 11 2007 (IPS) - The International Monetary Fund (IMF) forecast Wednesday that most developing countries will see robust growth for the rest of the year as part of a mostly positive outlook for the global economy.

The IMF said in its bi-annual Economic Outlook that India and China will continue to lead the way, with China’s economy expected to grow by around 10 percent in 2007.

India grew at 8.5 percent in 2007, but the Washington-based lender expected the rate to ease slightly in 2007.

The rest of Asia will also see positive growth on the back of what the Fund said was growing intra-regional trade and China’s strong economy.

The Fund said that Africa will grow at more than six percent in 2007, up from about 5.5 percent last year as rising oil production in a number of countries pulls up their economies.

A recent report by the IMF’s own internal monitor, however, noted that while a number of sub-Saharan Africa countries saw improved macroeconomic performance between 1999 and 2005, with higher growth rates and falling inflation, there was almost no change in the share of the population living in poverty.

According to the latest forecast, the Middle East will also grow as most oil exporters increase government spending and invest in oil sector capacity.

In the former Soviet republics, growth will moderate somewhat and Eastern European nations will see less growth from their six percent rate in 2006, according to the IMF. The forecast said the region would continue to benefit from high rates of foreign direct investment and foreign bank lending.

However, the Fund warned that the heavy reliance on foreign capital could expose exports in parts of “emerging Europe” to risks down the road.

In Latin America, the Fund saw growth slowing from 5.5 percent in 2006 to 5.4 percent in 2007. It said that countries there continued to build credible macroeconomic policies and balance their budgets, although it urged accelerating labour market reforms in the region to boost poor productivity.

For developing economies, the Fund said that they will continue to draw support from favourable global financial conditions and commodity prices that remain high.

As for rich nations, the IMF said that the U.S. growth projection for 2007 has been marked down to 2.2 from 3.3 last year. The IMF said the U.S. saw a weaker than expected second half, and the anticipated reaction to a slowing housing market, but expected that the U.S. economy would gather some momentum during the course of the year as the drag from the housing sector dissipates.

“Thus far, the U.S. housing market’s broader impact in the economy has been contained as resilient consumption remains supported by solid income and jobs growth,” said Timothy Callen, chief economist at the IMF.

The European Union will also slow down from 2.6 percent in 2006 to about 2.3 percent in 2007 because of fiscal contractions in Germany and Italy. The report spoke of employment gains and rising productivity in Europe, a combination has not been seen in some time.

The Fund said that employment growth and optimism in the business sector in Japan will see its economy grow at 2.3 percent in 2007, the same as last year.

Collective global growth is expected to moderate to 4.9 percent in 2007 and 2008, some half a percentage point slower than in 2006.

However, the Fund said that while the risks to the growth outlook are less threatening than at the time of the September 2006 World Economic Outlook, they are still tilted to the downside.

It listed threats from a potential for a sharper slowdown in the United States if the housing sector continues to deteriorate and there is another spike in oil prices.

The forecast comes ahead of the joint meetings of the Fund and its sister institution, the World Bank, this weekend to discuss the direction of the global economy and development issues.

But as the Fund was releasing its report, a U.S. economic think tank issued a study charging that the IMF forecast has had errors in the past.

The Centre for Economic Policy Research (CEPR) raises questions about IMF projections for Argentina’s Gross Domestic Product growth since 1999 and Venezuela’s since 2003.

“It’s hard to look at the pattern of these large, repeated errors – especially for Argentina – and not wonder what went wrong here,” said economist Mark Weisbrot, co-director of CEPR and co-author of the paper with David Rosnick.

The authors say that over and over again, the IMF has made large errors in overestimating Argentina’s GDP growth for the years 2000, 2001, and 2002.

“This was during the country’s 1998-2002 depression, when the IMF was lending billions of dollars to support policies that ultimately ended in an economic collapse,” said the study. “These overestimates then changed to large underestimates for the four years 2003-2006, as Argentina’s economy grew rapidly.”

The paper looks at the record of IMF public documents and finds evidence that “faulty economic analysis and political considerations may have contributed to these errors.”

Similarly, the authors suggest that the IMF’s repeated large errors in underestimating Venezuela’s GDP growth for the years since 2004 may be related to its apparent dislike for that government.

The IMF projections for the years 2004, 2005, and 2006 underestimated GDP growth by 10.6 , 6.8, and 5.8 percentage points respectively, the paper said.

Other recent studies, including one on the IMF’s projects in Africa, have also stressed that economic growth does not always lead to job creation and in fact can worsen existing poverty and income inequalities.