Whilst thankfully sparing us all any more clich? references to 'green shoots of recovery' this month's International Monetary Fund (IMF) World Economic Outlook Update is predicting that the global economy is beginning to pull out

of recession, although it adds that stabilisation is uneven and the recovery is expected to be sluggish.

Published yesterday, the report refers to the current recession as 'unprecedented in the post-World War II era' but more happily projects that economic growth during 2009-10 is now expected to be about half a percentage point higher than forecast by the IMF in April, reaching 2.5% in 2010.

The IMF added that among the major economies, growth rates have been marked up mainly for the United States and Japan.

‘The good news is that the forces pulling the economy down are decreasing in intensity,’ said IMF Chief Economist Olivier Blanchard at a press briefing yesterday. ‘The bad news is that the forces pulling the economy up are still weak. The balance is slowly shifting, and this leads us to predict that, while the world economy is still in recession, the recovery is coming. But it is likely to be a weak recovery.’

The IMF also released a separate update to its Global Financial Stability Report (GFSR). Financial conditions have improved, as forceful policy intervention has reduced the risk of systemic collapse and expectations of economic recovery have risen. ‘The unprecedented policy response in both the financial and macroeconomic domains has reduced the risk of systemic collapse and begun to restore market confidence,’ said Jos? Vinals, Director of the IMF's Monetary and Capital Markets Department, although he added that many vulnerabilities remain and complacency must be avoided.

In its precis of the overall projections, the IMF said that financial conditions have improved more than expected, owing mainly to public intervention and recent data suggests that the rate of decline in economic activity is moderating, although to varying degrees among regions.

But it adds that despite these positive signs, the global recession is not over, and the recovery is still expected to be slow as financial institutions remain weak and credit intermediation impaired, support from public policies will gradually diminish, and households in countries that suffered asset price busts will rebuild savings.

The IMF said: ‘The main policy priority remains restoring financial sector health. Macroeconomic policies need to stay supportive, while preparing the ground for an orderly unwinding of extraordinary levels of public intervention. At the same time, given weak internal demand prospects in a number of current account deficit countries, including the United States, policies need to sustain stronger demand in key surplus countries.’

Meanwhile, while the world economy is stabilising, the report added that advanced economies as a group are still projected not to show a sustained pickup in activity until the second half of 2010. Accordingly, global activity is forecast to contract by 1.4% in 2009 and to expand by 2.5% in 2010. At the same time, the IMF is projecting that GDP in the advanced economies will decline by 3.8% in 2009 before growing by 0.6% in 2010.

The IMF said: ‘Although the projections are 0.6 percentage points higher than in the April World Economic Outlook forecast, growth in 2010 would still fall short of potential until late in the year, implying continuing increases in unemployment.

‘In the United States, high-frequency indicators point to a diminishing rate of deterioration, including in the labour and housing markets. Industrial production may be close to bottoming out, the inventory cycle is turning, and business and consumer confidence has improved. These developments are consistent with stabilisation of output during the second half of 2009, with a gradual recovery emerging in 2010.

‘In Japan, following a dismal first quarter, there are signs that output is stabilising. Improved consumer confidence, progress in inventory adjustment, aggressive fiscal policies, and strong performance by some other Asian economies are expected to lift growth in the coming quarters.

‘In the euro area, consumer and business survey indicators have been recovering, but data on real activity show few signs of stabilisation and thus activity is projected to strengthen more slowly than elsewhere. Macroeconomic policies are providing support, but much of the adjustment in the labour market still lies ahead. Rising unemployment will weigh on consumption and activity, as will the economy's heavy dependence on a still-ailing banking sector.

‘Emerging and developing economies are projected to regain growth momentum during the second half of 2009, albeit with notable regional differences. Low-income countries are facing important challenges because official aid has fallen and these economies are particularly vulnerable to swings in commodity prices.’

[The full report – published yesterday – can be found at: www.imf.org/external/index.htm – Ed].