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Currency shifts support global economic growth: IMF

Currency shifts support global economic growth: IMF

WASHINGTON: Recent shifts in exchange rates should help the global economy, boosting Japan and Europe in particular, amid increasing divergence in the growth paths of the world’s major economies, the International Monetary Fund (IMF) said on Tuesday.

The Washington-based institution kept its global growth forecasts unchanged, with faster economic expansion in the eurozone and India expected to be offset by diminished prospects in other key emerging markets such as Russia and Brazil.

But it cautioned that the economic recovery remains “moderate and uneven,” beset by greater uncertainty and a host of risks, including geopolitical tensions and financial volatility.

In its flagship World Economic Outlook, the IMF kept its forecast for global growth this year at 3.5 per cent. For 2016, the IMF expects global gross domestic product to expand 3.8pc, up from the 3.7pc it forecast in January.

The headline figures mask a growing split among major economies, in part due to the varying impacts of currency fluctuations and lower oil prices.

The sharp rise of the dollar against the euro and yen is expected to be a major theme at the meeting of the world’s top economic policymakers in Washington later this week. The currency moves have exposed some emerging economies as well.

The IMF said monetary policies are driving most of the currency movements, as the US Federal Reserve prepares to raise rates while the European Central Bank and Bank of Japan maintain their monetary stimulus.

The currency effects should boost global GDP, supporting demand in the still-troubled economies of the eurozone and Japan, the IMF said, raising its forecasts for both regions.

The IMF also cut its outlook for the United States, as a 10pc appreciation in the dollar over the last six months dragged down net exports.

But it said both the United States and China, whose yuan is linked to the dollar, have some policy space to offset the appreciation of their currencies.

Published in Dawn, April 15th, 2015

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