Growth gap set to narrow as economy slows, IMF says

The gap in GDP growth between advanced and emerging economies is expected to narrow as the world economy slows in 2011, according to the International Monetary Fund (IMF).

In the 2008-09 downturn the gap widened as emerging economies were generally less affected than developed ones. While advanced economies’ GDP contracted by an average 3.2% in 2009, based on purchasing power parity, emerging and developing economies grew by 2.5%.

In 2011 the IMF expects global growth to slow to 4.2% from 4.8% this year. Emerging growth is forecast to fall to 6.4%, from 7.1%, and advanced economy growth to drop to 2.2%, from 2.7%. (article continues below)

The predictions were part of the IMF’s World Economic Outlook (WEO) last week, in which it published its latest growth forecasts, global outlook and policy recommendations.

On a country level, the IMF’s projections vary significantly. Britain, for example, is expected to grow by 1.7% this year and by 2% next year. The IMF points to subdued domestic demand, particularly after public spending cuts are implemented, as one of the main causes. The organisation also gives sluggish personal consumption as a reason for downgrading its growth predictions for America.

For the eurozone, the IMF forecasts a “gradual and uneven recovery”. While the region’s GDP is projected to grow at 1.7% this year and 1.5% next year, emerging Europe’s growth is expected to be 3.7% and 3.1%.

Resilient demand has, aided by policy stimulus, offset the drag from net exports in most of Asia. The big exception in Asia is Japan, which is expected to grow by 2.8%, followed by a slowdown to 1.5% in 2011.

In its foreword the WEO warns that economic rebalancing is happening too slowly both within countries and between them. “The result is a recovery that is neither strong nor balanced and runs the risk of not beingsustained,” it says. The main risks to its relatively benign growth projections are, it adds, on the downside.