World economy fragile, faces "uneasy calm:" IMF

Tue Apr 17, 2012 2:30pm EDT
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By Stella Dawson

WASHINGTON (Reuters) - Global growth is slowly improving as the U.S. recovery gains traction and dangers from Europe recede, but risks remain high and the situation is very fragile, the International Monetary Fund said on Tuesday.

Another flare-up of the euro-zone sovereign debt crisis or sharp escalation in oil prices on geopolitical uncertainty could disrupt a world economy finding its feet once again after market turmoil over euro-zone budget deficits, the IMF said.

"An uneasy calm remains. One has the feeling that at any moment things could well get very bad again," IMF chief economist Olivier Blanchard told reporters as he detailed the Fund's World Economic Outlook.

"Our baseline forecast is for low growth in advanced countries, especially in Europe, but with downside risks being extremely present," he said.

The IMF revised upward its global growth forecast for this year to 3.5 percent from 3.3 percent in January, and to 4.1 percent for 2013 from 3.9 percent previously.

While the euro zone will suffer a mild recession, the IMF said it will be less severe than feared after policy actions calmed markets at the turn of the year.

European leaders toughened their fiscal rules, the European Central Bank bond buying flooded markets with money, new governments in Italy, Spain and Greece are pushing through harsh budget reforms and euro-zone leaders have agreed to enlarge their bailout fund.

The United States, meanwhile, is gradually gaining momentum while China and other emerging economies appear on track for gradual slowdowns without crashing, the IMF said.   Continued...

A worker walks past a residential construction site as the sun sets behind construction cranes on the outskirts of Beijing August 18, 2011. REUTERS/Soo Hoo Zheyang