The world economy's surprisingly strong rebound from the deepest recession since the Second World War is masking "a more complex reality," the International Monetary Fund's chief economist said Wednesday.
At a press conference in Washington to release the IMF's latest World Economic Outlook, Olivier Blanchard revised his outlook for global growth this year to 4.2 per cent from 3.9 per cent in January, while leaving the IMF's projection for 2011 unchanged at 4.3 per cent.
That would be the biggest expansion since 2007, when the world's gross domestic product expanded by 5.1 per cent, and go some distance to erasing the memories of 2009, when global GDP contracted 0.9 per cent.
Yet the fallout from last year's recession will continue to be felt, especially in richer countries such as the United States and many European nations. Advanced economies will grow 2.3 per cent in 2010 and 2.4 per cent in 2011, relatively weak showings that reflect persistent unemployment rates and tepid private demand.
"This is just not enough to make up for ground lost during the recession," said Mr. Blanchard, adding that economic output in the world's developed countries is seven per cent lower than it was before the financial crisis. "This output gap is expected to remain large for many years to come."
Canada will fare comparatively well, according to the IMF's latest forecast. The country's GDP will expand 3.1 per cent in 2010, the same as the U.S. and the fastest among Group of Seven nations. Canada's economy will grow 3.2 per cent in 2011, as the U.S. slows to 2.6 per cent, the IMF said.
Still, the IMF in the World Economic Outlook calls Canada's recovery "protracted," reflecting "more moderate demand growth than in the United States as well as the substantial strengthening of the Canadian dollar."
Canada's relative strength compared with its peers in advanced economies is the result of sounder finances and other fundamentals that had the country in "good shape" ahead of the crisis, making its exit from extraordinary stimulus measures "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 said in the report.
The global economy's engine is the bigger emerging markets and developing nations, which as a group will post economic growth of 6.3 per cent in 2010, compared with an estimate of 6 per cent in January, the IMF said.
India and Brazil, especially, are powering out of the recession much faster than the IMF expected. India, the third-biggest economy in Asia after Japan and China, will post growth of 8.8 per cent in 2010, 1.1 percentage points more than the IMF's previous estimate. Brazil, the biggest economy in Latin America, will see its GDP expand 5.5 per cent this year, compared with an estimate of 4.7 per cent in January.
China will remain the world's fastest growing major economy with a projected expansion of 10 per cent this year and 9.9 per cent in 2011.
"Growth appears not only strong, but sustainable," Mr. Blanchard said.
That's not to say the path for emerging markets is without peril.
The lopsided recoveries in developing countries and advanced nations presents risks of asset bubbles and inflation in emerging markets because investors, seeking stronger returns than can be had in slower growing developed economies, will be tempted to pour capital into emerging Asia and Latin America.
At the same, in order to maintain economic growth, policy makers in China and other emerging markets will have to generate more demand from their consumers to make up for lost consumption in the U.S. and Europe, Mr. Blanchard said.
"The asymmetric nature of the recovery creates serious challenges," Mr. Blanchard said.