China and other emerging nations are lifting the Global economy, but their strength threatens to come at the expense of the USA and EU.
The emerging countries are benefiting from low-priced exports driven low currencies that are raising the prospect of trade frictions for years to come.

In its latest economic forecast, the International Monetary Fund (IMF) predicts the World economy will expand 4.8% this year and 4.2% next year. That surpasses last year’s 0.6% decline, the worst performance since World War II.

Growth in China is forecast to be 10.5% this year and 9.6% next year. Brazil’s economy is expected to grow 7.5% this year before slowing to 4.1% in Y 2011.

But the IMF forecast, released Wednesday, points to lingering weakness in the United States and Europe after the worst recession in decades.

The agency said that the Global economy will require a balancing act: Countries with huge trade and budget deficits such as the United States will need to boost exports. And countries with big trade surpluses such as China must reduce their dependency on exports and boost domestic demand.

The US is arguing that China is manipulating its currency to gain trade advantages and helped suppress US exports. The Chinese currency has made Chinese goods cheaper for American consumers. It also hurt US companies by making their products costlier in China.

China said in June that it would move to a more flexible exchange-rate policy. But the Yuan has risen by just over 2% since then.

US lawmakers facing mid-term elections have put pressure on the Obama Administration to impose trade sanctions on China.

US Treasury Secretary Timothy Geithner Wednesday stepped up pressure on Beijing to make more progress to let its currency fluctuate. In a speech at the Brookings Institution, Mr. Geithner said the United States would make currencies a major topic at International finance meetings this weekend in Washington. The Treasury Secretary said other nations have been hurt by China’s undervalued currency and would like to see Beijing adjust its currency.

China’s economy is only 30% the size of the US economy, but the gap is likely to narrow. Some analysts forecast that China will overtake the United States as the World’s largest economy within the next 20 yrs.

The IMF prediction of 2.6% growth for the United States this year is weak coming after a recession. Though it is a sharp reversal from the 2.6% decline in US activity last year. That was the steepest drop since Y 1946. The US forecast is down from a 3.3% growth projection the IMF made in July.

The US economy slowed sharply in late Spring and Summer this year as the European debt crisis shook the confidence of investors and businesses. The IMF’s forecast of 2.3% US growth for Y 2011 is down from its 3% estimate in July.

Growth prospects are even dimmer in Europe. The 16 nations that use the common Euro currency will see their economies average 1.7% growth this year and 1.5% next year, the IMF says.

Growth in Japan is projected to be 2.8% in Y 2010 and 1.5% in Y 2011. Its Y 2011 estimate was trimmed because Japan is still struggling to emerge from nearly 2 decades of low growth.

Combined, advanced economies such as the United States and Europe are forecast to grow 2.7% this year and 2.2% next year.

By contrast, emerging and developing economies such as those in China, Russia, Eastern Europe and Latin America, are expected to expand 7.1% this year and 6.4% in Y 2011, more than twice the growth rates of the advanced Western economies.—Paul A. Ebeling, Jnr. www.livetradingnews.com

The IMF said the recovery from the recession remains vulnerable to threats, including soaring budget deficits in many nations. It says credible plans to cut deficits are urgently needed.

The IMF’s latest World Economic Outlook indicates that more than 210 million people across the globe are unemployed. That’s an increase of more than 30 million since 2007 before the recession began

Posted by Shayne Heffernan on Oct 6th, 2010and filed underBRIC, Emerging Markets, Foreign Exchange, Latest News, Markets.You can follow any responses to this entry through theRSS 2.0You can leave a response by filling following comment form or trackback to this entry from your site