IMF forecast to reflect upbeat expectations: Lipsky

WASHINGTON (Reuters) - Updated IMF economic forecasts this month are likely to show “somewhat more upbeat expectations” about the world economy, a senior International Monetary Fund official said on Monday.

The IMF’s First Deputy Managing Director, John Lipsky, wrote in an IMF blog that the improved prospects are evident in economic data and financial markets and will be reflected in the IMF’s World Economic Outlook expected later this month.

He warned, however, there were many reasons to be cautious about the economic recovery underway.

“These are not normal times, and the reasons for caution about the outlook remain powerful, pointing to a relatively modest recovery in the advanced economies,” he wrote.

He noted that high unemployment rates are limiting consumption in some places, while weakened household balance sheets have caused uncertainty about spending prospects and credit losses are mounting in some sectors, especially in commercial real estate.

All of the above point to the need for the world’s major economies to carry through with their fiscal stimulus plans in 2010, while at the same time developing medium-term frameworks for limiting spending and rolling back their widening deficits.

On the other hand, growth projections are more positive in emerging market countries, especially in Asia, Lipsky said.

In the IMF’s last economic forecast update on October 1 the Fund declared the global economic recovery had begun and revised up its forecasts for world economic growth to 3.1 percent in 2010.

Lipsky said the world faced five challenges:

* Securing the recovery by ensuring policies are supportive of growth and are globally consistent.

* Protecting the poor and most vulnerable, and restoring growth in low-income countries.

* Reforming the financial sector to make it more effective and reducing risks that could lead to future crises.

* Restructuring and reforming international financial institutions

* Rethinking and debating lessons from the crisis to help form a new policy consensus.

Reporting by Lesley Wroughton; editing by Andre Grenon