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Last Updated: Wednesday, 29 September, 2004, 16:01 GMT 17:01 UK
IMF: Growth is strong, but for how long?

By Stephen Evans
BBC North America business correspondent

With heavy clouds looming, an unidentified couple check out the surf at Melbourne Beach, Florida, September 2004
Economists cannot say whether the clouds will vanish or grow

Economics isn't called the gloomy science for nothing.

For economists, even when the sun is shining there's always a cloud on the horizon.

The difficulty - and skill - is to work out whether that distant blotch in the bright blue sky will grow to overwhelm us or be dissipated by the sun.

So it is with the International Monetary Fund (IMF).


In its autumn assessment of the state of the world economy, the IMF reckons that the global economy will grow this year by 5%, as high as its been in nearly three decades.

But then it warns in its World Economic Outlook that there are clouds on the horizon (or perhaps even nearer):

"Without further action there is a serious risk of shortfalls in many regions, leaving the world significantly more vulnerable to the shocks it will inevitably face in the future," it says.

The IMF outlook is concerned particularly about deficits, both in the public finances of governments around the world and in trade between countries.

In plain English, deficits have to be financed by borrowing and large scale debt, with the risk of large-scale default and large-scale disruption and pain.

Central role

On the financial position of the world's governments, the IMF says: "High and poorly structured public debt is for many an Achilles' heel, which if not addressed is very likely to lead to further financial crises in the future."

Rodrigo De Rato, head of IMF
IMF head Rodrigo De Rato: Can he look into the future?

It's also worried about balance of payments deficits, particularly in the United States.

"The question is not whether the US deficit will adjust - it will - but when and how the adjustment will take place, and in particular whether it will be associated with an abrupt exchange rate adjustment.

"Since current account corrections have historically tended to be associated with a slowdown in growth in the deficit country, even an orderly adjustment carries risk, given the central role that the United States has played in supporting global growth in recent years."


On the bright side, the IMF sees some hope in "the information technology revolution".

It says that the gains so far have been confined to the IT sector itself but that the improvements are now spreading across the economy.

This transformation, allied to the transformation of the Chinese economy, promise great benefits for the world:

"China's rapid growth, which may well be sustained for two decades or more, will also result in a substantial reorganization of global production, the more so if it is joined by India.

"Both these developments suggest the scope for substantial productivity gains in coming years, coming most rapidly in those countries that are sufficiently adaptable to take advantage of them."

In short (and not in the IMF's words): Global inflation is rising, but not enough to cause serious worry; interest rates are rising, oil markets will continue to be volatile.

But global growth is strong, albeit with some danger signs.

The sky is blue but there are clouds. Not even the best economists can say with certainty whether these clouds will vanish or grow.

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