Economic growth will be higher than projected, the IMF says, unless, of course, it's not

07/08/2010 9:55 am EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Janus, the Roman god of beginnings, transitions, and doorways whose two-faced imaged looked both forward and back, would be proud of the IMF (International Monetary Fund) today.

The IMF raised its forecast for global growth this year to 4.6% from the previous 4.2% forecast in April.  (The IMF left its forecast for 2011 at 4.3%)

But the IMF also warned that continued turmoil in the financial markets has increased the risk that the global economy will stall.

In other words, things will be pretty good—unless, of course, they aren’t.

Break down that global growth, the IMF said, and you’ve got the United States and Canada leading the developed economies. The IMF raised its forecast for growth in the world’s developed economies to 2.6% for 2010, up from 2.3% in its April forecast. But (that ol’ Janus face again) the IMF also lowered its 2011 forecast for every member of the Group of 7 developed economies—except for the United States.

The U.S. economy will grow at a 3.3% rate in 2010 (up from the 3.1% rate predicted in April) and then by 2.9% n 2011.

Japan’s economy will grow faster than projected in April—2.4% versus the earlier 1.9% forecast—and then slow to a 1.8% growth rate in 2011.

For the economies of the Euro Zone, the IMF kept its 2010 forecast unchanged at a 1% growth rate and actually cut its 2011 projection to 1.3% from April’s 1.5% forecast.

Projected growth is higher in the world’s developing economies—faster even than the IMF forecast in April. The overall growth rate for these economies climbed to a projected 6.8% from 6.3% in April.

China leads the pack in this group with a forecast for 2010 growth of 10.5%, up from a forecast of 10% in April. The IMF forecast growth in India of 9.4% and in Brazil of 7.1%, up from 5.5% in the April forecast.

Inflation in the developing economies will climb to 6.25% in 2010 before interest rate increases bring it down to 5% in 2011, according to the IMF.

All that sounds pretty good, right? Well, don’t get too comfortable. It could all come apart, the IMF warned.

The biggest worry is that huge government deficits in the developed economies will undermine confidence in the financial markets as investors worry about future growth, future fiscal responsibility, and the potential for needed budget cuts to produce a double-dip recession.  Governments in the developed world need to implement credible plans to lower deficits.

But, the IMF warned in a warning to its warning, these governments should move carefully so that budget cuts don’t undermine economic growth and lead to an upsurge in unemployment. These countries don’t need to begin budget cuts until 2011, the IMF said.

And even then, governments in developed economies should be ready to change course quickly and completely, the IMF said, if risks materialize.

Think the IMF believes in hedging its bets?

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