Global economic  growth is expected to reach 3.5 per cent this year, up from 3.2 per cent in 2012, the International Monetary Fund  (IMF) said in its half-yearly World Economic  Outlook report, released at the World Economic Forum in Davos on Wednesday.
“Global economic conditions improved modestly in the third quarter of 2012,” the report said. “The main sources of acceleration were emerging market economies, where activity picked up broadly as expected, and the United States, where growth surprised on the upside.”
Policy actions have lowered acute crisis risks in the euro area and the United States. But in the euro area, the return to recovery after a protracted contraction is delayed. While Japan has slid into recession, stimulus is expected to boost growth in the near term, the report said.
Financial conditions stabilized, it said as bond spreads in the euro area periphery declined, while prices for many risky assets, notably equities, rose globally. Capital flows to emerging markets remained strong. Global financial conditions improved further in the fourth quarter of 2012.
The IMF has revised near-term outlook for the euro area downward, even though progress in national adjustment and a strengthened EU-wide policy response to the euro area crisis reduced tail risks and improved financial conditions for sovereigns in the periphery.
“Despite all the political and economic uncertainties in the world, financial assets registered robust gains in 2012,” said an analyst at SEI Investments. “We expect 2013 to be characterized by improved global economic growth, less financial-market volatility in Europe and some calming of the political waters in the US and elsewhere.”
In the Middle East and North Africa region, many countries will need to maintain macroeconomic stability under difficult internal and external conditions.
“There is a renewed optimism in global markets and US corporate earnings have mostly surprised to the upside,” said Mark McFarland
Chief Investment Strategist at Emirates NBD Bank . “Purchasing managers indexes outside of Europe (and Eastern Europe) continue to show an improving outlook, not just in terms of how manufacturers and service providers see things ahead, but in how their orders books and shipments look right now.”
The near-term growth outlook for Japan has not been downgraded despite renewed recession. Activity is expected to expand by 1.2 per cent in 2013, broadly unchanged from October, IMF says.
“The recession is expected to be short-lived because the effects of temporary factors, such as the car subsidy and disruptions to trade with China, will subside. And a sizeable fiscal stimulus package and further monetary easing will give growth at least a near term boost, with support from a pickup in external demand and a weaker yen,” the report said.
Growth in emerging market and developing economies is on track to build to 5.5 per cent in 2013. Nevertheless, growth is not projected to rebound to the high rates recorded in 2010-11.