The global economy is recovering from recession more strongly than expected, the IMF said on Thursday but warned that the crisis is not over and severe risks lie ahead. The IMF projected the global economy would grow 3.1 percent in 2010, after shrinking at an annualized 1.1 percent this year. The estimates were upwardly revised from July forecasts of 2.5 percent expansion next year and a 1.4 contraction in 2009. Global growth of around 3.0 percent in 2010 would be “far below” the pace before the financial crisis struck in 2007 and accelerated in September 2008 after the bankruptcy of Wall Street investment bank Lehman Brothers. “Downside risks remain a concern. The main risk is that private demand in advanced economies remains very weak,” IMF economists wrote. “Premature exit from accommodative monetary and fiscal policies is a particular concern because the policy-induced rebound might be mistaken for the beginning of a strong recovery,” the 186-nation institution said. Credit constraints remain a significant barrier to growth, despite the hundreds of billions of public dollars pumped into the financial system to unblock the gridlock. Banks lack the capital to restore lending to levels that would support a sustained recovery. The IMF estimates that global bank writedowns could reach $2.8 trillion for the period between mid-2007 through end-2010, with $1.5 trillion in losses yet to be recognized. The bulk of the losses occurred to US, British and eurozone banks.
