IMF Raises 2012 Global Growth Forecast To 3.5%

The International Monetary Fund (IMF) has raised its global growth forecast despite a persisting Eurozone debt crisis.

In its World Economic Outlook, which was released Tuesday, the IMF said global economy could grow at an annual rate of 3.5 percent in 2012 and 4.1 percent in 2013. Earlier, it had forecast 3.3 percent growth in 2012 and 4.0 percent in 2013.

Improved activity in the United States during the second half of 2011 and better policies in the euro area in response to its deepening economic crisis have reduced the threat of a sharp global slowdown, the IMF said.

Weak recovery will likely resume in the major advanced economies, and activity is expected to remain relatively solid in most emerging and developing economies. However, the recent improvements are very fragile, it added.

The IMF has forecast that the US will grow 2.1 percent in 2012 and 2.4 percent in 2013. It says that the economic condition in the US is improving with signs of expansion in the job market. At the same time, the IMF has warned policymakers that the first priority for the US authorities is to agree on and commit to a credible fiscal policy agenda that places debt on a sustainable track over the medium term.

It has forecast that China will grow 8.2 percent in 2012 and 8.8 percent in 2013. Strong domestic consumption and investment are the major factors responsible for driving growth in China.

The IMF says India will record 6.9 percent growth in 2012. The report has stressed that India needs to tackle its policy uncertainty and make sure that potential growth, which is the maximum rate of growth a country can achieve without fanning inflationary pressures, is not declining any further.

Meanwhile, concerns about the situation in the Eurozone still persist. The euro area is projected to decline 0.3 percent in 2012.

Spain and Italy, which are expected to face economic contraction of 1.8 percent and 1.9 percent respectively in 2012, continue to be a major cause of worry for the world economy. A flare-up in the euro area from increased sovereign and bank stress could easily undermine confidence in the corporate sector and thereby squeeze investment and demand, the IMF says.

The IMF has warned that the rise in oil prices could seriously impair the economic growth. It says the stoppage of oil supplies from Iran could increase the prices by 20 to 30 percent.

Check out the chart below to see the IMF growth forecast for major economies.