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Growth gap set to narrow as economy slows, IMF says

The gap in GDP growth between advanced and emerging economies is expected to narrow as the world economy slows in 2011, according to the International Monetary Fund.

In the 2008-09 downturn the gap widened as emerging economies were generally less affected than developed ones. While advanced economies’ GDP contracted by an average 3.2 per cent in 2009, based on purchasing power parity, emerging and developing economies grew by 2.5 per cent.

In 2011 the IMF expects global growth to slow to 4.2 per cent from 4.8 per cent this year. Emerging growth is forecast to fall to 6.4 per cent, from 7.1 per cent, and advanced economy growth to drop to 2.2 per cent, from 2.7 per cent.

The predictions were part of the IMF’s World Economic Outlook last week, in which it published its latest growth forecasts, global outlook and policy recommendations.

On a country level, the IMF’s projections vary significantly. The UK, for example, is expected to grow by 1.7 per cent this year and by 2 per cent next year. The IMF points to subdued domestic demand, particularly after public spending cuts are implemented, as one of the main causes. The organisation also gives sluggish personal consumption as a reason for downgrading its growth predictions for America.

For the eurozone, the IMF forecasts a “gradual and uneven recovery”. While the region’s GDP is projected to grow at 1.7 per cent this year and 1.5 per cent next year, emerging Europe’s growth is expected to be 3.7 per cent and 3.1 per cent.

The WEO warns that economic rebalancing is happening too slowly both within countries and between them. “The result is a recovery that is neither strong nor balanced and runs the risk of not being sustained,” it says. The main risks to its relatively benign growth projections are, it adds, on the downside.

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