IMF raises 2006 global growth forecast to 5.1 pct, hikes 2007 to 4.9 pct

The IMF marked up its forecasts for global growth following stronger-than-expected economic activity in the first half of this year, but said there are a number of downside risks to the projections.
It raised its projection for global growth to 5.1 pct this year and 4.9 pct next year, from previous forecasts of 4.9 pct and 4.7 pct respectively.
The upbeat growth forecasts come after strong growth figures of 4.9 pct in 2005 and 5.3 pct in 2004.
"This would be the strongest four-year period of global expansion since the early 1970s," the IMF said in its twice-yearly world economic outlook.
It said activity in most regions met or exceeded expectations in the first half and indicators suggest that the pace of expansion is being maintained in the third quarter.
The fund said its growth forecasts depend on inflation pressures being contained by modest further rises in interest rates and on domestic demand growth becoming more balanced between the major economies.
There are therefore significant risks which could weigh on growth if they were to materialise, it said.
"The risks to this baseline forecast would seem... increasingly tilted to the downside, even more so than at the time of the April 2006 world economic outlook," it said.
Inflation pressures could continue building and require more aggressive rate hikes, with additional inflation coming from a rise in oil prices above the 75 usd per barrel level on which the forecasts are based, it said.
A sharp weakening of the US housing market would also weigh on activity, possibly subtracting 1 percentage point from US growth, it said.
Another risk is that household demand in Europe and Japan might not strengthen as much as expected, leaving these economies vulnerable to a slowdown in the US. Deficit reduction measures could weigh on demand in some euro zone countries, it said.
And emerging markets could be hit by rising interest rates and financial market volatility, while an avian flu pandemic would potentially have extremely high human and economic costs, the IMF said.
But for the moment, there are few signs of such risks materialising.
The declines in equity markets seen in May and June do not seem likely to have any major impact on growth, the IMF said.
"For the most part, asset price declines seem to have represented corrections after major run-ups rather than a fundamental reassessment of economic risks," it said.
However, the dollar's depreciation since late 2005 does appear to be the result of expectations of a US slowdown, it said.
"The recent depreciation of the US dollar seems to reflect in part perceptions that with the US expansion at a more mature stage, interest rate differentials vis-a-vis the other major currencies are likely to narrow, as well as increased market concern with global imbalances," it said.
It said the imbalances -- essentially the large US current account deficit and corresponding surpluses in some Asian economies -- continue to be a concern for the economic outlook.
A gradual and orderly unwinding of the imbalances remains the most likely outcome, but there is also a risk of a more disorderly adjustment, involving a rapid dollar fall, volatile financial market conditions, rising protectionist pressures and a significant blow to global output, it said.
The package of measures needed to ensure a smooth resolution of the problem is well known, but progress has been slow, it said.
The G7 and IMF have frequently said that the US should increase savings and cut its deficit, Europe and Japan speed up structural reforms, and China and emerging Asia boost domestic demand and increase exchange rate flexibility.
"Progress in advancing toward these goals has been in some cases slower than desirable, hampered in part by the difficulty of developing national political consensus on policy changes," the fund said.
The IMF also voiced concern over the breakdown of the Doha round of WTO world trade talks.
"The present deadlock in the Doha round negotiations is deeply disappointing and raises concerns about a resurgence of protectionism," it said.