Istanbul - The world economy has pulled out of its worst recession since World War II and will stage a sluggish recovery in the coming year, the International Monetary Fund said in a revised economic forecast released Thursday. But the IMF warned the recovery was largely due to massive public spending by governments. The underlying economy remains weak, unemployment will rise and the pace of the recovery will be slower than usual in coming years, according to the IMF's semi-annual World Economic Outlook.
"The recovery has started. Financial markets are healing," said IMF chief economist Olivier Blanchard.
But he added: "The current numbers should not fool governments into thinking the crisis is over."
Overall, the world economy will shrink 1.1 per cent this year before growing 3.1 per cent in 2010. That compares to the IMF's July forecast of a 1.4-per-cent contraction in 2009 and 2.5-per-cent growth the following year.
Growth in the following years will also remain sluggish. The IMF said the world economy will grow 4 per cent on average between 2010 and 2014 - down from about a 5-per-cent average rate in the years before the crisis.
The recovery is being led by strong growth in emerging Asian powerhouses like China and India, while the United States, Europe and Japan are just beginning to emerge from devastating recessions.
The world's advanced economies will grow by 1.3 per cent in 2010 - up from the IMF's forecast of 0.6 per cent in July - after shrinking a massive 3.4 per cent this year. Developing countries will grow 4.7 per cent in 2010 after their growth slowed to 1.5 per cent this year.
Europe could face unemployment of nearly 12 per cent by the end of 2011, while the US jobless rate will peak at 10 per cent in 2010, the IMF said.
The IMF report was one of its rosiest since the world economy was plunged into a deep recession last year with the onset of the financial crisis.
Yet the recovery is both fragile and somewhat artificial: public spending has propped up many economies around the world over the past year, instead of private consumption. The IMF warned governments not to be duped into pulling back their support measures too early.
"Premature exit from accommodative monetary and fiscal policies seems a significant risk because the policy-induced rebound might be mistaken for the beginning of a strong recovery in private demand," the IMF report said.
Reviving that private demand "is clearly going to be a challenge for advanced countries," said Blanchard.
