IMF Cautiously Optimistic

  The IMF & #160;believes the global economy will do a bit better next year, but not before doing a bit worse than expected this year, with the recovery next year flowing mostly from emerging economies such as China and India.That means Australia will be well placed to weather the slowdown with only a mild slump. & quot;Economic growth during 2009-10 is now projected to be about ½ & #160;percentage points higher than forecast by the IMF in April, reaching 2.5 & #160;percent in 2010, according to the update of April's World Economic Outlook published on this week. & quot;Among the major economies, growth rates have been marked up mainly for the United States and Japan. & quot; The Fund had forecast 2010 growth at 1.9% in April.The IMF also said in its latest financial stability report that financial conditions are on the improve, but the global economy would contract by 1.4% this year, down from the 1.3% forecast in April.The IMF was more confident than it has been for several world forecasts and updates, and it was more optimistic than the leaders of the G8 countries at their summit in Italy.But those 8 countries (the US, Japan, UK, Britain, France, Italy, Germany & #160;and Canada are all & #160;forecast to be among the worst performers in the global economy over the next year). & quot;The world economy is stabilising, helped by unprecedented macroeconomic and financial policy support.However, the recession is not over and the recovery is likely to be sluggish, & quot; the IMF said on Wednesday in its World Economic Outlook report update.The more pessimistic outlook for 2009 was largely driven by conditions in Europe, where the IMF now expects Germany's economy to shrink by 6.2% and Italy's by 5.1%.As a group, the world's advanced economies will contract by 3.8% this year, according to the report.They will also be slower to recover, not picking up until the middle of next year when they are expected to grow by a weak 0.6%.In contrast, it predicted emerging Asian economies including China and India would grow by 5.5% this year and 7% next year. & quot;However, the recent acceleration in growth is likely to peter out unless there is a recovery in advanced economies, & quot; the Fund warned.The financial system has been shored up by a slew of extraordinary policy interventions, the Fund said in an accompanying report on financial stability.Funding pressures and counterparty risk have declined, reducing the likelihood of another event like the collapse of Lehman Brothers. & quot;Nonetheless, vulnerabilities remain and complacency must be avoided, & quot; the report said. & #160; & quot;The financial sector continues to be dependent on significant public support, resulting in an unparalleled transfer of risk from the private to the public sector. & quot;It said it was not the right time to start withdrawing such public support, but that & quot;exit strategies & quot; should be drawn up and may need to include the transfer of some programs from central banks back to fiscal authorities.So America down this year and just up in 2010. Seeing the economy slipped into recession first back in December 2007, it stands to reason that it would be one of the first of the badly affected ones to emerge on the other side.But it will feel as though the economy is still gripped by recession, even if growth is positive. Unemployment will continue rising well into any recovery.Rory Robertson of Macquarie Bank pointed out earlier this week in a comment on US unemployment: not only have 6 million jobs been lost, but hours worked cut to a record low and wages growth is now running at an annual 2.1%. & quot;That employers tend to cut hours worked more sharply than employment ( & quot;labour hoarding & quot;) in recessions is well known. & #160; & #160; & quot;What is disturbing is the extreme downward pressure on labour incomes associated with that extraordinarily large drop in private-sector hours worked. & quot;The dramatic drop in US aggregate hours worked and so lower labour income, alongside the savage reduction in household and business wealth (home prices are down about 30% from peak, share prices down about 40% from peak) and sharply reduced credit availability, will make it hard for US consumption to grow more than modestly in the period ahead, if at all. & #160; & #160; & quot;Something like this is happening also in Europe and the UK, among other economies. & quot; Mr Robertson wrote.So when the recovery comes, US consumers (and those in Japan and Europe and the UK), are not going to have very much money to spend buying new goods.That has been evident now for some months as retail sales stumble along and consumer credit contracts (and consumer bad debts rise).Total consumer borrowing fell by a seasonally adjusted & #36;3.22 billion, or a 1.5% annual rate, to & #36;2.52 trillion in May, according to the Federal Reserve.That's & #160;the amount of & #160;debt consumers have outstanding.It was a smaller fall than expected, but then April's & #36;US15.7 billion fall was revised downwards to a new record monthly fall of & #36;US16.5 billion.But another report out this week revealed that delinquencies on consumer debt in the US reached record levels in the first quarter.Figures from the American Bankers Association showed that late payments on home-equity loans rose to a record in the first quarter & #160;of 3.52% of all accounts from 3.03% in the fourth quarter of 2008.Late payments on home-equity lines of credit climbed to a record 1.89%.Delinquent bank-card accounts jumped to a record 6.60% of all outstanding credit card debt in the March quarter, from & #160;5.52% in the December quarter.American banks & #160; issued 9.8 million credit cards from January to April, a fall of 38% from the first quarter of 2008, according to anther report from & #160;Equifax Inc., an American & #160;credit bureau.The Bankers Association said it & #160;tracks data from 300 banks, monitoring late payments on eight types of & #160;loans that are used as a benchmark for typical consumer delinquencies.This & #160;composite index rose to the highest level since the group began collecting data in October 1974. of these 8 types of loans (known as closed end loans), delinquencies rose on five: home-equity loans, direct auto loans, recreational vehicle, mobile home and personal loans. Car loans & #160;account for 45% & #160;of all consumer closed-end loans. & #160;  

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