IMF is, however, hopeful of an improved outlook for 2010 with growth at 1.7 per cent and one of the factors for its upward revisions for global economy is “improved prospects in China and India, in part reflecting substantial macro-economic stimulus and faster than expected turnaround in capital flows”. But, it cautions that the recent acceleration of these countries” growth is “likely to peter out unless there is recovery in advanced economies”.

While India's growth in 2009 is estimated at 5.4 pr cent (higher than the 4.5 per cent in April outlook) and China's at 7.5, in both cases increase by one percentage point, advanced economies as a whole would shrink by3.8 per cent this year and recover to 0.6 per cent in 2010. This would mean emerging economies like China and India would continue to experience weak demand for their exports and world trade, when emerging out of decline this year, would grow only by one per cent next year.

Nevertheless, IMF expects China and India to move up to 8.5 and 6.5 per cent growth respectively in 2010. Emerging economies and developing counties could regain growth momentum in the second half of 2009, although with “notable regional differences”. Emerging Asia as a whole would record 5.5 pr cent growth this year and 7 per cent in 2010 and this upgrade is attributed to the expected improvement in China and India.

In view of the weak internal demand prospects in USA, IMF says policies in key surplus countries (like China among emerging economies) would need to sustain stronger domestic demand. This should hold good for India as well with its current account deficit and the bleak outlook for global financing brought out in another IMF report on Global Financial Stability.

Whereas we have put store by capital flows and external trade for higher growth.

More than USA, the Euro-zone is in deeper recession with little or no recovery in 2010. Current estimates for 2009 and 2010 are - USA (-2.6) and 0.8 per cent, EU (-4.8) and (-0.3) and Japan (-6.0) and 1.7 per cent respectively. IMF says the advanced economies are not expected to show sustained pick up in activity until the second half of 2010. The two other BRIC economies, Russia and Brazil will have output declines of 6.5 and 1.3 per cent respectively in 2009 and would recover by 1.8 and 2.5 in 2010.

IMF has reworked its estimates on the basis of recent data suggesting moderation in the rate of decline in economic activity, in varying degrees, across regions. The major concern still remains with the global financial system which, after all unprecedented interventions by central banks and governments, remains impaired, it says. Main policy priority should be restoring financial sector health and macro-economic policies need to stay supportive. (This is in the domain of RBI though India has maintained financial stability).

India's ambitious growth target of 9 per cent would not be easy to recapture within two years as is being hoped for by Government, in the context of the sluggish recovery anticipated in 2010 and the lingering effects of the global recession coupled with the tightness in the international credit markets. Predictably, the Planning Commission has begun reworking its own 9 per cent growth objective of the 11th plan in mid-term appraisal which would take note of the drift so far and the new policy thrusts in the post-election phase.

In USA, there is growing concern at the lack of weakening of recession despite the 787 billion dollar package for recovery and re-investment in February and questions have been raised outside the Administration whether a further stimulus is needed. But Obama Administration economists are confident that though only 100 billion dollars had been spent over the last four months, the stimulus would gather steam in the second half of 2009 and would bring down job losses.

The concerns have arisen essentially because of the depressing job numbers with unemployment rising to 9.5 per cent in June. More than six million jobs have been lost in the recession since December 2007. Companies are cutting down jobs and have mostly run down inventories trying to protect profitability. Corporate spending had been paired by 248 billion dollars in the first quarter of 2009, according to business journals, and all this does not contribute to economic recovery.

While US Administration had taken some significant steps to repair the financial system, credit crunch has not appreciably eased. The IMF report on the financial system says while actions on both sides of the Atlantic have reduced risk of another systemic failure (like the Lehman Brothers in USA in September last), it is proving difficult to effectively implement measures to fully address the problem of impaired assets and bank balance-sheets. The system is still left vulnerable to further deterioration.

Financial sector continues to be dependent on significant public support resulting in unparalleled transfer of risks from the private to public sector, the report says. Bank credit is still slowing and de-leveraging countries and it makes it a drag on economic recovery. But more public intervention may be needed in the near term to ensure adequate capital levels for banks and promoting restructuring where needed.

Despite some rebound in emerging markets since February, the overall outlook for these economies remains vulnerable to lower than expected global growth and to constrained international bank lending, according to IMF again. Banks are protecting their cross-border positions at a faster rate although parent banks may be maintaining funding level to their emerging market subsidiaries. The report goes on to point out that sovereign debt markets may be at risk of destabilisation if public debt financing is viewed as unsustainable.

Emerging markets remain vulnerable to spillovers from mature economies that may result in a more general slowing or cessation of capital inflows. Corporate borrowers with high roll-over requirements are particularly susceptible in this regard. At this critical stage in emerging from the crisis, policymakers need to safeguard the gains made thus far, the report adds. (IPA Service)