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Growth forecasts optimistic warns IMF

The International Monetary Fund (IMF) has warned that the UK is unlikely to meet the growth forecasts predicted by the Government.

In its latest World Economic Outlook, the IMF lays out the prospect of a world economy divided starkly between the slow-growing West and the dynamic emerging economies of the East.

"The global recovery is proceeding better than expected but at varying speeds, tepidly in many advanced economies and solidly in most emerging and developing economies," it said.

"As high unemployment persists in advanced economies, a major concern is that temporary joblessness will turn into long-term unemployment."

The Fund said the UK would recover "moderately", though much less quickly than the Government has predicted. The IMF says the UK will grow by 1.3% this year and 2.5% next, which would actually take the UK higher in the league table of advanced economies. But the difference between the IMF's forecast and the Government's central projection of 3.25% growth has serious implications for unemployment and the public finances.

Indeed the IMF says that unemployment will increase to 8.3% this year compared to the current UK rate of 8% revealed yesterday. The IMF's forecasts for world growth this year have been raised by 0.3%, to 4.2%. However there is a huge disparity between the established economies and the likes of China and India. While the US will grow by a relatively healthy 3.1% this year and 2.6% next, the eurozone is stuck on 1% and 1.5% and Japan on 1.9% and 2%.

By contrast, India will grow by over 8% this year and next and China 10% in 2010 and 9.9% in 2011 it forecast.

Echoing its previous views, the IMF again called for rapid action to rein in spiralling government deficits: "In many advanced economies, there is a pressing need to design and communicate credible medium-term fiscal consolidation strategies.

"If macroeconomic developments proceed as expected, most advanced economies should embark on fiscal consolidation in 2011."