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IMF: China to drive growth in many economies

Washington - Emerging economies are set to grow nearly three times faster than rich nations next year as the fragile global recovery loses a step, the International Monetary Fund said on Wednesday.

China will be a driver of growth in many economies, especially commodity-exporting nations, but the developed world faces "subdued" prospects, the IMF said in its World Economic Outlook report.

The global recovery remained fragile because policies were not yet in place to allow for a smooth transition from public support to private demand, it said.

"The global recovery is continuing, but its strength is not yet assured," the IMF said.

The need for rich countries to finish repairing battered financial sectors and begin reining in bloated budgets will weigh on growth in emerging economies next year, which will need to boost domestic demand, the Fund said.

The IMF trimmed its global growth forecast for 2011 to 4.2% from a July projection of 4.3%. For this year, it expects the world economy to grow 4.8%, up from an earlier forecast of 4.6%.

Growth in emerging market countries will slow to 6.4% in 2011 from 7.1% this year, it said. In contrast, it sees advanced economies expanding just 2.2% next year, a slowdown from the 2.7% it expects in 2010.

The IMF said budget adjustments in debt-ridden advanced economies need to begin in earnest next year, but if growth threatens to slow more than expected countries with fiscal room should postpone the spending cuts.

The Fund said monetary policy should remain supportive in most advanced economies, and in many economies where rates are already near zero, officials may need to resort to further unconventional measures if demand weakens unexpectedly.

Asia drives recovery

With China's economy likely to grow 9.6% next year and India expected to expand by 8.4%, Asian economies are in the driver's seat.

But the IMF said China and other major emerging economies in Asia need to allow their currencies to appreciate to help them shift away from relying on exports for growth.

The report comes ahead of meetings of the International Monetary Fund and World Bank starting on Friday in Washington where currencies will be a hot-button issue.

The prospect of a further easing in the United States' already ultra-loose monetary policy has driven down the value of the dollar, raising worries in many emerging markets that their exports would be undercut.

Japan has also felt the pain. Tokyo intervened in foreign exchange markets for the first time in six years last month to drive down the value of the yen.

The IMF said the value of the yen was "broadly in line with medium-term fundamentals." It said the dollar was "on the strong side."

Slow growth and high unemployment in most rich countries have left them unusually reliant on exports, and weaker currencies can provide a trade advantage.

The IMF said U.S. economic growth will be much weaker this year and in 2011 than previously thought due to sluggish consumer spending, dimming prospects of lowering the stubbornly high unemployment rate.

It said the U.S. Federal Reserve should maintain an easy monetary policy stance, saying it saw some risk of deflation.

In Europe, the IMF said the recovery would likely be moderate and uneven, although it had "gained some vigor." Monetary policy, it said, should remain "very supportive" in most European economies.
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