UPDATE 4-IMF raises 2010 world GDP forecast, flags Europe risks

* Lifts global GDP growth forecast to 4.6 pct from 4.2 pct

* Sees recovery risks from Europe debt crisis

* Says Europe needs further progress on fiscal

* Brazil has biggest upgrade among 2010 GDP forecasts

* Too early to say if China has a property bubble-IMF
(Adds links to Reuters Insider TV shows)

By James Pomfret and Kelvin Soh

HONG KONG, July 8 (BestGrowthStock) – The International Monetary
Fund upgraded its 2010 global growth forecast on Thursday,
citing robust expansion in Asia and renewed U.S. private
demand, but warned the euro area’s debt crisis posed a big risk
to recovery.

The IMF said the euro zone’s sovereign financing problems
and resulting financial market turbulence were significant
challenges, especially with the web of financial and trade
links connecting Europe to the world. However, a double-dip
world recession was highly unlikely.

The fund raised its 2010 global output forecast to 4.6
percent from 4.2 percent in April’s review of the global
economy, but kept its 2011 view unchanged at 4.3 percent.

The world economy shrank 0.6 percent in 2009 as a result of
the global financial crisis.

“What has happened in Europe is likely to slow down the
path to recovery relative to what could have happened, but I
think the chances of a double dip are very small, as you know
we’re forecasting fairly strong growth for the world economy
this year,” Olivier Blanchard, the IMF’s chief economist, said
at a briefing in Hong Kong for the organisation’s latest World
Economic Outlook and Global Financial Stability reports.

It was the first time the IMF updated these reports from
Hong Kong.


For a table of updated IMF forecasts, click on:


For more on the European bank stress tests, click on:


For Reuters Insider interview with IMF’s Blanchard:


For Reuters Insider interview with IMF’s Vinals



The euro fell (Read more about the trembling euro. ) 8 percent in the second quarter of 2010, the
largest quarterly decline since the first quarter of 2009, on
fears that some European countries in the currency group may
not be able to dig themselves out of their deep debt holes.

While uncertainty about bank regulation has added to
investor concerns, the IMF focused the majority of both reports
on the implications of the euro zone sovereign crisis.

In the news briefing, Blanchard said the European bank
stress test disclosures due on July 23 were an important step
toward transparency but underscored that countries must return
to a sustainable level of fiscal spending. [ID:nLDE6660VK]

Under one scenario — assuming shocks to the global
financial system resulting from Europe’s debt problems are as
severe as those experienced in the wake of Lehman Brothers’
failure in 2008 — world GDP growth in 2011 would be reduced by
1.5 percentage points, the IMF said.


Persistent weakness in the U.S. housing and labour markets,
euro zone debt problems and a slowdown in growth of
manufacturing activity in Asia have made investors speculate
the global economy will slow sharply for the rest of the year.

The IMF on Thursday cut its 2011 growth forecasts for
Britain, Canada, the euro zone, emerging economies and Japan.

The euro area’s 2010 GDP was seen expanding 1 percent,
unchanged from April, although the 2011 GDP forecast was
trimmed by 0.2 percentage point to 1.3 percent.

The biggest upward revisions to growth were in developing
economies. Brazil’s 2010 growth forecast was raised by 1.6
percentage points to 7.1 percent and its 2011 forecast was
lifted by 0.1 percentage point to 4.2 percent.

The IMF also raised its 2010 forecast for China’s growth to
10.5 percent from 10.0 percent.

Blanchard said Beijing’s shift last month to allow more
flexibility in the yuan was headed in the “right direction.”
The IMF has said before the yuan is significantly undervalued.

Jose Vinals, the IMF’s financial counsellor and director of
the monetary and capital markets department, downplayed talk of
a collapse in China’s real estate market.

Asked if a bubble was forming in Chinese property, he told
Reuters Insider TV: “It’s too early to say this is the case. I
think that this is not likely to be the case if these measures
are effective as we expect them to be.”

Kenneth Rogoff, former chief economist at the IMF, speaking
at a conference in Hong Kong on Tuesday, said China faced a
property market bubble. Although officials were doing the right
thing by trying to clamp down on real estate, the ultimate
impact on the banking system was uncertain, he said.

Blanchard said the IMF was working with China to bring more
clarity on bank lending to local governments. Official Chinese
data show Chinese banks may have as much as $1 trillion in
loans to local governments on their books.

“We think it is manageable but we think it has to be much
more transparent. And maybe some of the loans that were made
were unwise,” Blanchard said.
(Additional reporting by Kei Okamura)
(Writing by Kevin Plumberg; Editing by Kazunori Takada)

UPDATE 4-IMF raises 2010 world GDP forecast, flags Europe risks