IMF: World economy to strengthen modestly in 2013

The global economy is poised for a gradual upturn in 2013 as the constraints on growth gradually ease, but policy complacency should be guarded against as risks remain, the International Monetary Fund (IMF) said in its updated World Economic Outlook (WEO) on Wednesday. The report observed that economic conditions improved modestly in the third quarter of 2012, driven by acceleration in emerging economies and the United States. Global financial conditions improved further in the fourth quarter of 2012 with sovereign spreads in weak euro area countries declined considerably. However, in the euro area, the return to recovery after a protracted contraction is delayed, and Japan moved into recession in the second half of 2012, said the report. CAUTIOUS OPTIMISM AMID MODEST IMPROVEMENT The 188-member IMF predicted that world output would rise 3.5 percent in 2013, a modest uptick from 3.2 percent in 2012. But the figure was slightly lower than the Fund's last projection made in October. "Optimism is in the air, particularly in financial markets. And some cautious optimism may indeed be justified," said IMF Chief Economist Olivier Blanchard at a news conference. Advanced economies were expected to grow at a rate of 1.4 percent in 2013, a 0.2-percentage-point downward revision from the projection of October 2012. The IMF forecast a contraction of 0.2 percent this year in the eurozone, which remains a large source of downside risk to the global outlook. The U.S. economy is predicted to advance 2 percent in 2013 on the assumption that the spending sequester will be replaced by back-loaded measures. Japan's stimulus package and monetary easing will help boost growth in the near term, pulling the country out of a short-lived recession, the report noted. The Japanese economy is expected to expand 1.2 percent in 2013. Growth in emerging markets and developing economies is projected to accelerate from 5.1 percent in 2012 to 5.5 percent in 2013, as supportive policies have underpinned much of the recent acceleration in many economies. China's growth rate is expected to pick up to 8.2 percent in 2013 from 7.8 percent in 2012. Blanchard noted that progress has been made on U.S. fiscal problems as well as Europe's firewall against debt crisis. Meanwhile, most emerging markets have been able to offset the decreasing external demand coming from the weakness of the advanced countries, and have been able to handle the volatility of the capital flows.