IMF managing director says world economy is strong but faces risks

The managing director of the IMF, Rodrigo de Rato, says the global economy remains resilient but faces significant risks, and that global imbalances are a complex problem that has no simple solution.
"The global economy has been resilient and growth prospects remain strong," Rato told reporters as the annual meetings of the IMF and World Bank opened here.
"But there are also risks to this generally good outlook: inflation risks are a concern as output gaps narrow, high oil prices could adversely affect both inflation and growth, and there has been a major setback in the Doha round of trade talks."
Rato said it would be unrealistic to expect the problem of global imbalances to be solved by what he called a "magic bullet", given that the problem took years to build up.
But generally, the IMF projects sustained recovery this year and next, and Rato stressed that the credibility of central banks in preventing or fighting inflation would remain an important factor in keeping the global economy on its growth path.
Rato said China must put into action last year's decision to revalue the yuan, stressing the importance of the health of the Chinese economy for that of the global economy.
"The decision taken by China last year to change its exchange rate mechanism was the right one, but that decision has to be implemented," he said.
"We believe that it is in the interests of China -- not only in exchange rates but in general -- to let market forces determine allocation of resources more effectively in the economy of China," he said.
"We believe that is the big challenge for China in the next few years."
He concluded: "Given the importance of the Chinese economy, having a more stable medium-term prospect for China growth is very important for the world economy."
Rato called for a firmer fiscal policy in Italy, saying that its fiscal situation is "very challenging".
Italy's budget deficit this year is projected to be way above the 3 pct limit imposed by the EU's Stability and Growth Pact, and the government has proposed sharp fiscal tightening to bring the deficit below the 3-pct ceiling by the end of next year.
The IMF managing director said the macroeconomic conditions in Argentina were too accommodative and were giving rise to price pressures. He called for tighter monetary and fiscal policy there.
Rato called for a more flexible fiscal framework in Brazil. But John Lipsky, first deputy director of the IMF, stressed that the basic outlook for the economy there was positive.