The IMF today slightly raised its growth forecasts for the world including the US, but said the global economy remains in a 'tough spot' due to rising inflation amid a slowdown.
World output is expected to climb 4.1% in 2008, up from its April projection of 3.7%, the International Monetary Fund said in an update of its April World Economic Outlook. But the report also dramatically boosted the inflation outlook.
For 2009, the forecast calls for 3.9% global growth, up from its earlier call of 3.8%.
IMF chief economist Simon Johnson said there is still 'a chance of a global recession,' which many economists say would occur if global growth falls below 3%. He said the overall growth picture is 'roughly' the same as in April but that 'the situation has become more complicated since April because of the inflation problem.'
The IMF made modest upward revisions in the outlook for the US, euro zone, Japan and China, but suggested that the small gains in output still reflect a slowing from 2007 levels and may be overshadowed by inflation pressures.
'The global economy is in a tough spot, caught between sharply slowing demand in many advanced economies and rising inflation everywhere, notably in emerging and developing economies,' the report said.
'Global growth is expected to decelerate significantly in the second half of 2008, before recovering gradually in 2009. At the same time, rising energy and commodity prices have boosted inflationary pressure, particularly in emerging and developing economies.'
Based on the latest trend, the IMF said the top priority for policymakers is to head off rising inflationary pressure, while keeping sight of risks to growth.
The IMF lifted its 2008 inflation forecast sharply to 3.4% for advanced economies, from its April figure of 2.6%. For emerging economies, prices are expected to soar 9.1%, up from an earlier estimate of 7.4%.
'Inflation is mounting in both advanced and emerging economies, despite the global slowdown,' the report said.
'In many countries, the driving force behind higher inflation is higher food and fuel prices. Oil prices have risen substantially above previous record highs in real terms, driven by supply concerns in the context of limited spare capacity and inelastic demand, while food prices have been boosted by poor weather conditions on top of continued strong growth in demand.'
On the growth front, the IMF said the outlook for the US, the world's biggest economy, is not as dire as initially projected. The latest forecast calls for a 1.3% expansion in 2008, in the second upward revision in the past month for the US. The IMF maintained its call from last month's update of 0.8% US growth for 2009.
The new projection is based on incoming data for the first half of the year, the IMF said, while indicating a recession remains possible for the US economy.
For the euro zone, the new IMF 2008 projection calls for growth of 1.7%, 0.3 percentage points more than it saw in April. The 2009 outlook was held at 1.2% growth.
In Japan, the IMF added 0.1 percentage points to its 2008 outlook to show 1.5% growth. China's 2008 growth estimate was lifted to 9.7% from 9.3% and the 2009 estimate was boosted to 9.8% from 9.5%.