Decline in world economy moderating: IMF's Lipsky

By Selcuk Gokoluk
BODRUM, Turkey (Reuters) - The International Monetary Fund is likely to revise its 2010 growth forecast for the world economy up with signs the rate of decline in global output has moderated, a senior IMF official said on Friday.
Addressing a Turkish business conference in this southern Turkish resort, IMF First Deputy Managing Director John Lipsky, however, warned it was far too early to declare victory, with financial conditions far from normal and the world economy still in recession.
"While the latest data point to a slowing of the global contraction, there is still great uncertainty regarding the timing and pace of economic recovery," he said in prepared remarks to the Turkish Industrialists' and Businessmen's Association.
Turning to the economy of his hosts, Lipsky said Turkey may be on the verge of recovery but its rising fiscal deficit could hamper the rebound in growth.
He said consumer confidence in Turkey has rebounded strongly and manufacturing and employment have picked up, but he warned that Turkey's fiscal gap was a concern.
"The rising fiscal deficit and weakening loan quality could -- if not addressed forcefully -- cloud the growth outlook, including by curtailing banks' ability to extend credit," he said.
Lipsky and other IMF officials have met Turkish Treasury officials over the past two days, prompting market gains on hopes the country was close to an IMF loan accord. But an IMF official told Reuters on Thursday a deal had not been reached, reining in market optimism.
The IMF is scheduled to present updated forecasts for the world economy on July 7 in Washington. In its previous forecast in April, the Fund projected the world economy would contract 1.3 percent this year in the deepest recession since World War Two and then rebound to grow at 1.9 percent next year.
SLUGGISH RECOVERY
Lipsky said the recovery next year will be sluggish, with activity in the world's advanced economies likely to revive only gradually, weighed down by financial deleveraging, restrained credit growth and weak household income growth.
Meanwhile, emerging markets will be unable to return to trend growth while advanced economies are still underperforming.
"As a result, output gaps and unemployment rates in most economies should continue rising through 2010," Lipsky warned.
He emphasized that policies need to focus on a sustained recovery, starting with reviving the financial sector.
So far, progress overall in nursing banks back to health had been slow and uneven, while little had been done to resolve the problem of toxic assets on banks' balance sheets.
"In order to lay the ground for a revival of bank credit growth, the near-term focus of policies should continue to be on restructuring weakened financial institutions by cleansing banks' balance sheets of impaired assets, assessing bank viability, and ensuring bank recapitalization where needed," he said. Continued...
Source: Reuters