Economic growth is finally spreading from the United States to other parts of the industrialized world, but severe global imbalances risk future progress, the International Monetary Fund (IMF) said Wednesday. In its semi-annual world Economic Outlook, the IMF predicted growth in global gross domestic product (GDP) of 4.9 percent this year, an improvement from the 4.3 percent it predicted last September. “Despite higher oil prices and a number of natural disasters, economic activity in the second half of last year and early 2006 was strong, and inflationary pressures remain subdued,” the report said. “The economic expansion has also become more broadly based.” “While the United States is still the main engine of growth among industrial countries, it is increasingly supported by the ongoing expansion in Japan and signs of a sustained recovery in the euro area,” the report said. However, the IMF warned of risks to global growth from record-high oil prices, rising interest rates, and a potential bird flu pandemic. It also expressed concern about the World Trade Organization's (WTO's) inability to break a deadlock over how to eliminate barriers to commerce, and issued a strong warning against protectionism. “A failure of the (WTO's) Doha round, though not catastrophic, would be a very important setback,” IMF chief economist Raghuram Rajan told reporters, urging the international community not to abandon globalization. “Economic patriotism is protectionism …, but it is … more dangerous in an interconnected world.” The 12-nation euro zone is expected to post growth of 2 percent in 2006 and 1.9 percent the following year. The common currency area remains vulnerable to any downturn in external demand and to high oil prices, but “investment appears to have remained resilient,” the report said. Growth in Japan, which is emerging from a decade-long slump, was predicted by the IMF to be 2.5 percent this year and 2.7 percent in 2007. The Japanese economic expansion “remains solidly on track,” aided by export growth and recoveries in consumer demand and corporate profits, the report said. The rest of Asia is benefiting from soaring growth rates in China and India, the IMF said. China's GDP growth is expected to expand by 9.5 percent this year and 9 percent in 2007, helped by booming investment and export growth.
