Global recovery faster than expected, says IMF

The IMF wants regulatory reform of financial institutions

The global economy will grow a faster than expected 4.2% this year, says the International Monetary Fund (IMF).

However, recovery in many advanced economies remains “tepid” and high government debt levels need to be addressed, the IMF said.

For this reason, governments must continue with economic stimulus measures this year, it added.

The IMF forecast the UK recovery would “continue at a moderate pace”, with a weak pound helping exports.

The fall in the currency will help offset subdued domestic demand, it argued.

The comments were made in the IMF’s latest World Economic Outlook.

Cutting debt

The fund expressed concerns about the continued shortage of bank lending, which it said was likely to remain subdued as banks built up their capital bases.

The body also raised concerns about the options available to governments to continue stimulating their economies.

Governments across the world have already reduced interest rates to record lows in order to stimulate demand.

“A key concern is that room for policy manoeuvres in many advanced economies has either been exhausted or become much more limited,” the fund said.

What governments can, and must, do, is make public their plans to cut debt levels, it argued.

“There is a pressing need to design and communicate credible medium-term fiscal consolidation strategies.

“These should include clear time frames to bring down gross debt-to-GDP ratios over the medium-term, as well as contingency measures if the deterioration in public finances is greater than expected.”

Governments should not start to cut spending until next year, the IMF said, apart from those countries with high debt levels that needed addressing now.

Greece, for example, has been forced into a series of spending cuts and tax rises in order to bring down its budget deficit.

Bank tax

The IMF also said that governments must come to an agreement on regulatory reform of the banking sector.

The fund has proposed that all financial institutions pay a bank levy – initially at a flat rate – and also a further tax on profits and pay.

The measures are designed to make banks pay for the costs of future financial and economic rescue packages.

The far-reaching proposals are likely to prove deeply unpopular with banks, BBC business editor Robert Peston says.