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Global economy growing but rising government debt worrisome
BY MARTIN CRUTSINGER WASHINGTON — The International Monetary Fund says the global economy, after enduring a crippling recession, should see better-than-expected growth this year, led by strength in China and other developing countries.
In an updated economic outlook, the IMF forecast that the world economy would expand 4.2 per cent this year, faster than its previous projection and a sharp improvement from 2009 when global output fell by 0.6 per cent, the worst performance since the Second World War.
However, the international lending agency warned that the recovery still remained vulnerable with the biggest threat likely to come from a surge in government debt burdens.
“The outlook for activity remains unusually uncertain,” the IMF said in its latest World Economic Outlook. “Although a variety of risks have receded, downside risks related to the growth of public debt in advanced economies have become sharply more evident.”
The IMF’s estimate that the global economy would grow 4.2 per cent this year, represented a 0.3 percentage point increase from the IMF’s January forecast. For 2011, the IMF projected global growth of 4.3 per cent, no change from its January outlook. The IMF expects wide disparities between regions with the United States and Canada outperforming Europe and Japan but lagging China and other developing countries.
For the United States, the IMF expects growth of 3.1 per cent this year, in line with private forecasters, after a 2.4 per cent plunge in the U.S. gross domestic product in 2009, the biggest decline since 1946. That compares with growth of 2.6 per cent expected for advanced economies as a whole. U.S. growth is forecast at 2.6 per cent in 2011, slightly above the 2.4 per cent predicted overall for advanced economies.
“Turning to Canada, the recovery there is . . . expected to be protracted, reflecting more moderate demand growth than in the United States as well as the substantial strengthening of the Canadian dollar,” the report said.
It said output growth is projected at 3.1 per cent in 2010, up from 2.6 in the IMF’s previous projection in January. However, its current projection of 3.25 per cent growth in 2011 was down from 3.6 per cent in the previous report. Recent Bank of Canada estimates projected growth in Canada at 3.7 per cent this year and 3.1 per cent next year.
“Canada entered the global crisis in good shape, and thus the exit strategy appears less challenging than elsewhere,” the IMF said. “The main priorities are returning Canada’s debt to a downward trajectory, ensuring that financial stability remains intact — amid rising house prices — and raising Canada’s labour productivity and potential growth.”
The IMF forecast that China’s economy would surge 10 per cent this year and that India would grow 8.8 per cent. But it looked for the 16 European countries that share the euro currency to see economic growth of just one per cent in 2010.
The new forecast was prepared for upcoming meetings of global financial leaders, including daylong talks in Washington on Friday involving the Group of 20, which include the world’s richest industrial countries and major developing states including China, Brazil, India and Russia.
The U.S. delegation will be led by Treasury Secretary Timothy Geithner and Federal Reserve chair Ben Bernanke. The G-20 talks and weekend discussions at the IMF and World Bank are expected to focus on overhauling financial regulatory systems and rebalancing global growth to make the recovery more sustainable.
Finance Minister Jim Flaherty and Bank of Canada governor Mark Carney will lead the Canadian delegation.
U.S. Treasury officials who briefed reporters Tuesday on Geithner’s agenda said they believed support was growing for a financial risk levy along the lines of one proposed by U.S. President Barack Obama that seeks to raise $90 billion from the largest American banks to recoup losses from the $700-billion financial bailout fund. Flaherty has said Canada would not support such a levy.
The U.S. officials said they expected another key discussion topic would be the need to eliminate global imbalances, a goal that Obama and other G-20 leaders set at a summit in Pittsburgh last September. The rebalancing effort would mean countries with large trade and budget deficits would seek to boost savings and lower domestic demand while countries such as China that are running huge trade surpluses would transition to more domestic-led growth.
To foster the change in China, the Obama administration has been pressuring Beijing to allow its currency, the yuan, to rise in value against the dollar. American manufacturers contend the yuan is undervalued by as much as 40 per cent, giving Chinese producers huge trade advantages over U.S. companies.
However, the Treasury officials did not answer directly when asked whether the U.S. complaints would be brought up in the G-20 discussions. The administration has been recently seeking to temper its rhetoric with China on currency issues in hopes a softer tone will gain better results.
The IMF said it was essential for China, now the world’s third-largest economy, to do its part to assist in combating global imbalances.
The IMF said even with global growth rebounding, unemployment was likely to remain high in the United States and other developed countries over the next two years, given the severity of the downturn in those countries. The Associated Press http://news.therecord.com/Business/article/700389
What does one TRILLION dollars look like?
All this talk about "stimulus packages" and "bailouts"...
A billion dollars...
A hundred billion dollars...
Eight hundred billion dollars...
One TRILLION dollars...
What does that look like? I mean, these various numbers are tossed around like so many doggie treats, so here is an illustration from Google Sketchup
We'll start with a $100 dollar bill. Currently the largest U.S. denomination in general circulation. Most everyone has seen them, slighty fewer have owned them. Guaranteed to make friends wherever they go.
A packet of one hundred $100 bills is less than 1/2" thick and contains $10,000. Fits in your pocket easily and is more than enough for week or two of shamefully decadent fun.
Believe it or not, this next little pile is $1 million dollars (100 packets of $10,000). You could stuff that into a grocery bag and walk around with it.
While a measly $1 million looked a little unimpressive, $100 million is a little more respectable. It fits neatly on a standard pallet...
And $1 BILLION dollars... now we're really getting somewhere...
Next we'll look at ONE TRILLION dollars. This is that number we've been hearing about so much. What is a trillion dollars? Well, it's a million million. It's a thousand billion. It's a one followed by 12 zeros.
You ready for this?
It's pretty surprising.
Go ahead...
