TNN

New York, Feb 12: China and India — the only sizeable economies likely to record growth rates of over 5% — will prevent the world from recording negative growth in 2009, said the International Monetary Fund (IMF) on Wednesday.

The IMF's update to its World Economic Outlook is a sharp downward revision from the 2.2% growth in global output it had projected as recently as November last year. It now estimates the Chinese economy will grow at 6.7% rather than the 8.5% anticipated in November, while the forecast for India has been pared from 6.3% to 5.1%.

Advanced economies are projected to record a 2% decline in output. Ironically, while the US — where the current global crisis originated — will suffer a decline of only 1.6%, the UK will see its economy shrink by 2.8%, Japan by 2.6% and Germany by 2.5%. The Euro area as a whole will fare worse than the US with a 2% drop in output in 2009, the IMF projected.

For 2010, the Fund foresaw an impressive global recovery to 3% growth, with China's 8% and India's 6.5% once again leading the way. Once again, while the US will bounce back to grow by 1.6%, the Euro area will grow by a minuscule 0.2%, the UK by a similar rate and Japan by a somewhat better 0.6%.

One of the key reasons for the lowered forecasts by the IMF is an upscaling of estimates of the extent of toxic banking assets. While in October last year, the IMF had estimated that the potential deterioration in US-originated credit assets was of the order of $1.4 trillion, that figure has now been revised significantly upwards to $2.2 trillion.

The financial strains, the Fund said, will continue to pull down the real economy and added that no sustained recovery was possible unless the banking sector was restructured and credit markets unclogged.

While the IMF's estimates are for calendar years and hence not strictly comparable with those made for financial years ending in March, they do make you wonder whether the Prime Minister's economic advisory council was over-optimistic when it projected a growth rate of 7-7.5% for the Indian economy in 2009-10.