IMF raises global economic growth forecast

The International Monetary Fund (IMF) has raised its forecast for global growth this year, from 4.2% to 4.6%.

It said the world economy grew strongly in the first part of this year, mainly thanks to robust growth in Asia.

However, the UK was almost unique in having its 2010 growth forecast revised slightly down, while its 2011 forecast was cut by the IMF from 2.5% to 2.1%.

The IMF also warned risks had increased and there had been a setback in progress towards financial stability.

Developed economies have maintained a modest, but steady recovery in the year to date, the supranational agency said.

Concerns over the sustainability of government finances in the developed world, especially Greece and others in Europe, were the major threat to global recovery the IMF argued.

It said governments should focus on improving their finances, but warned them not to make cutbacks too rapidly.

In recent weeks, a number of governments have introduced austerity measures to cut deficit levels.

"Further credible and decisive policy action us needed to resume progress on financial stability and keep the economic recovery on track," said Jose Vinals, director of the Fund's monetary and capital markets division.

The IMF said that European banks in particular were being affected by the concerns about government debt and so were less wiling to lend to each other. Less credit available to the wider economy could undermine the recovery, it argued.

Although contagion to other regions of the world was likely to be limited, there was a risk that Europe's troubles could have a more substantial impact on global economic growth, it said.

The IMF significantly raised its 2010 growth forecast for Brazil - to 7.1% from 5.5% - as well as for East Asian tiger economies such as South Korea and Taiwan.

But the UK's was downgraded to 1.2% for this year from an earlier forecast of 1.3%.

This made it one of very few countries to have its growth forecast for 2010 downgraded in the report - the IMF's first forecast since publication of George Osborne's emergency budget.

"The IMF doesn't spell out why it is now more gloomy about the UK," said the BBC's economics editor Stephanie Flanders. "But I am assured that last month's Budget is the reason."

The agency also slightly reduced its 2010 forecast for France, as well as its 2011 forecasts for the Eurozone, Japan, China and Canada.

BBC