IMF raises forecast for Global economic growth

The International Monetary Fund (IMF) warned that inflation, oil prices and the U.S. housing slowdown threaten the strongest expansion in three decades. It predicted that the global economy is set for another year of strong growth.

IMF holds its World Economic Outlook twice a year. The forecast for Global Economic Growth stood at 4.9 percent in April but has now been lifted to 5.1 percent. Also, 4.9 percent growth in 2007 versus a previous projection of 4.7 percent has been predicted.

U.S., Europe and Asia have raised interest rates as higher energy costs and falling unemployment prompted companies to raise prices, IMF said.

“The strong central forecast is surrounded by more risk than usual,'' IMF Chief Economist Raghuram Rajan said. “Central bankers need to be wary of raising rates too much as they tackle inflation.”

The fund also calculated the chances of the global growth falling to 3.25 percent or less in 2007 is one-sixth.

This year marks the strongest four-year period of global expansion since the early 1970s, as the global growth has topped 4 percent, supported by vigorous emerging economies, especially China and India.

According to IMF, India's fast-growing economy should expand by 8.3 per cent this year instead of 7.3 per cent as previously projected in April. In 2007, India's growth is forecast to slow to 7.3 per cent, still higher than the earlier 7.0 per cent projection.

The fund estimated that the U.S. economy would grow 3.4 percent in 2006 but it revised down its previous forecast for 2007 growth by 0.4 percentage point to 2.9 percent. In the euro area, growth is likely to pick up in 2006 and then moderate next year, while in Japan the economy should continue to expand, the IMF said.

“Inflation is a risk worldwide and central banks will have to combat that with higher interest rates which will slow global growth over the next couple of years,'' said Pu Yonghao, head of Asian research at UBS AG in Hong Kong. “The growth forecast for 2006 is feasible.''