PARIS (Reuters) - The International Monetary Fund is likely to raise its forecasts for the world economy within weeks as the financial crisis shows signs of easing, a senior official said on Thursday, though he warned that serious problems remained in some emerging regions.
“After two quarters of sharp contraction, signs are emerging that the rate of decline in global output is moderating,” IMF First Deputy Managing Director John Lipsky told a conference organized by the Paris Club of official creditor nations.
“In the upcoming weeks, we will be updating our global growth forecasts and will likely revise modestly upward our projections, particularly for 2010.”
His comments were the latest in a series from policymakers and officials that suggest the most severe phase of the crisis may be past, and an uncertain period of stabilization followed by gradual recovery lies ahead.
The IMF’s latest outlook for global GDP, issued in April, forecast world output to decline by 1.3 percent in 2009 and grow by 1.9 percent in 2010. It is due to present updated forecasts on July 7.
Lipsky said problems in accessing outside finance and weak demand from export markets were still weighing heavily and recovery in emerging markets would depend on a pickup in the advanced economies.
“Modest recovery” this year and next would be led from Asia, where both China and India are expected to see revival, while activity in Latin America would also stabilize but there were more serious concerns in eastern and central Europe, he said.
Both Lipsky and European Central Bank governing council member Christian Noyer said that Baltic countries like Latvia, which is struggling to defend its lat currency peg to the euro, would not be helped by joining the single currency prematurely.
“It’s in the interest of candidate countries not to enter too early because it risks making the economic situation unbearable,” Noyer, speaking on the same panel discussion, said.
Latvia, which is facing an almost 20 percent slump in GDP after years of unsustainable growth and a housing bubble, has made euro zone entry part of its plan to fight the crisis but Lipsky said currency policy alone was not enough.
“If there is a solution it begins with macro policies,” he said. “No single exchange rates solution, or exchange regime represents a solution to these kinds of problems.”
“What is important is that the currency regime is credible and coherent,” he said.
Latvia aims to join the euro in 2013, and is trying hard to keep its peg as most loans to private individuals and businesses were in the single currency and any devaluation could lead to payment defaults that would hit banks hard.
It has passed austerity measures, including a 10 percent cut in pensions and a 20 percent cut in state salaries to help secure a 7.5 billion euros IMF-led rescue package. Analysts say failure to fight its way out of the crisis would likely spell further trouble for other of the EU’s eastern European wing.
Editing by Patrick Graham