Global economic recovery to be sluggish: IMF

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Last week, the International Monetary Fund upped its 2010 growth forecast for the global economy to 2.5% from the earlier 1.9%. In its world economic outlook update, IMF has also upped its 2010 forecast for the US economy to 0.8% from the previously expected 0%. India has also been upped to 6.5% from 5.6% expected in 2010. So what green shoots can the IMF see that we can't?

Jorg Decressin, the Author of the World Economic Outlook report and the Head of the World Economic Studies Division at the IMF, said the risks are still seen to the downside predominating those to the upside. He stated that key risks to the downsides are that the increase in unemployment and corporate bankruptcies affect financial systems more than what had been expected right now in financial markets. "If there is renewed bout of unrest or uncertainty in financial markets, this would then hamper credit and in turn hamper recovery. We maintain that this recovery will be a very sluggish recovery."

Here is a verbatim transcript of the exclusive interview with Jorg Decressin on CNBC-TV18. Also watch the accompanying video.

Q: What is it that you can see in terms of encouraging signs both for the global economy as well as for the American economy that has given your outlook on both these numbers a positive bias?

A: Well financial markets have stabilised faster than we expected. Systemic risk is much less of an issue now than it was a few months ago and this has prompted a return of confidence. Also in the real sector what you have seen is that the confidence of companies has gone up and in various places of the world, industrial production has been recovering as well. And that led us to revise our world economic outlook upwards.

Q: Let me talk about the American economic outlook in specific. The data coming in from the US economy, considering that much of this crisis started there, is still very mixed. For example, the housing market is not looking very good, and we are still seeing record numbers when it comes to unemployment. So, what data specifically did you see that made you think that a recovery is faster underway than earlier expected?

A: I think you have to distinguish between two movements here. One is the short run and one is the medium run. Over the medium run we have always said and we maintain that this recovery will be a very sluggish recovery. And in fact unemployment will only begin to decline late in 2010 or 2011. So, for many people the situation is going to get worse before it gets better.

But in the short run, we had forecasted originally that there was going to be more of a contraction in GDP in the second, third and fourth quarters than what we are projecting right now. And the key that makes the difference here is the recovery in financial markets, and the recovery in confidence, which will limit the decline in GDP that we will see over the coming quarters, and we can't even exclude that there might be some positive growth.

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