Global economy recovering, downside risks remain

Global economy is getting better in the first two months of this year but "risks are still on the downside", a senior official with the the International Monetary Fund (IMF) said here Monday. According to the IMF's forecast, the global economic growth will be 3.5 percent this year, compared to 4 percent last year, Deputy Managing Director of IMF Zhu Min said during a luncheon organized by the Asia Society Hong Kong Center. Zhu, former deputy governor of the People's Bank of China, said that although the growth rate is lower, worldwide economic situation in the first two month of 2012 is "getting better". For Europe, the European Central Bank has injected more liquidity in the market and sovereign bonds' yield has lowered to the level of last August. For the United States, the public demand has grown stronger and the consumer's confidence has regained. For Asia and other emerging markets, proactive actions have been taken to cool down the economy and manage the inflation. Despite all the improving signs, Zhu argued that risks are still on the downside for the world economy. For Europe, the deleveraging process of European financial institutions is still on and financial firewall is needed to prevent potential risks. " We are still expected to see a moderate recession in Europe at this moment," said Zhu, adding that further financial integration and a clear growth strategy are crucially needed for the region to counter such risks. For the United States, Zhu said that the economic growth rate is lower than expected with little improvement in both supply and demand sides. "The labor productivity is still lower than any labor productivity level before the crisis," he said. As for the emerging markets, Zhu elaborated that with moderate recession in Europe, more negative impact will come from external areas. Internally, big challenges such as inflation haven't gone away. Talking about potential risks for the recovery of global economy, Zhu believed that deleveraging and access to liquidity are the two processes that should be carefully managed by governments and international institutions. "It's extremely difficult to have a strong growth within a deleveraging process background. In that sense, we are probably looking at a moderate growth for some time to come. And with the accessed liquidity, the volatility is still the main risk," he said.