IMF cheery on world economy but warns against EMU delays

Prospects for the world economy are rosy but the contrasts between the fortunes of different countries are becoming starker, according to the International Monetary Fund (IMF). In a new set of economic forecasts yesterday it upgraded predictions for growth in the Anglo-Saxon economies and downgraded the outlook for continental Europe.

The IMF said none of the big five EU countries would meet the single currency target of a 3 per cent of GDP government deficit.

But it warned that there must be no delay to economic monetary union because the uncertainty was undermining growth.

Yet, in sharp contrast, the European Commission produced its rosiest forecasts for economic and monetary union yesterday, predicting that 13 countries would meet the key deficit criterion to qualify for the launch as growth picked up.

Brushing off renewed accusations that its predictions are massaged, the Commission predicted Germany, France, Portugal, Spain and Austria would meet the deficit ceiling dead-on. All five would hit the 3 per cent figure, which must be attained this year by countries hoping to join at the launch on 1 January 1999.

It was "no coincidence" that the figure should be precisely 3 per cent in so many cases, said Yves Thibault de Silguy, the Economics Commissioner. Attaining that target had been the countries' objective since the Maastricht Treaty. The Commission used the occasion to counter predictions the single currency might be delayed.

The IMF's semi-annual World Economic Outlook was more measured. It said the run-up to EMU was taking its toll on the European economies, because of budget cuts and uncertainty about the shape monetary union would take. "It is critical to get through this period promptly by bringing the project back to term within the agreed time frame," the report said.

It put government deficits in 1997 above the critical 3 per cent of GDP level in France, Germany, Italy, the UK, Spain and Greece, although the report said progress on deficit reduction had been impressive. It added that but for weak growth, all but four EU members would have met the target last year.

The IMF trimmed its 1997 forecasts for growth in Germany and Italy. Nowhere on the Continent does it see a chance of significant falls in unemployment this year, calling for more extensive reforms of employment legislation and benefit systems.

However, it raised its growth forecasts for the US, UK and Canada. Although warning of the risk of a sharp correction on Wall Street, the report said: "There are few signs of the tensions and imbalances that foreshadow significant downturns in the business cycle."

The risk of higher inflation in the UK points to the need for a tougher fiscal policy and an increase in interest rates, the Fund's economists say. They also reckon a further moderate rise in US interest rates will be needed.

On the other hand, the IMF said there might be a need for interest rates on the Continent to fall. Reductions in recent years should have been more rapid in response to the economic downturn.

Despite the differences between the EU and the authoritative IMF figures, Mr de Silguy insisted: "There has been no tinkering or trading." Suspicion has centred particularly on Germany in view of a series of gloomy economic predictions. It has become increasingly clear in recent weeks that the rest of the EU may come under pressure to turn a blind eye if Germany narrowly overshoots the deficit ceiling.

This was all but confirmed yesterday by Commission officials. They insisted differences were simply caused by "rounding up or rounding down of the figures".

Predictions that the Italian deficit would stand at 3.2 per cent this year and an even higher 3.9 per cent next year caused storms of protest in Rome. The Italian government now realises that it is unlikely to be given the same leeway as Germany, on the grounds that its budget-cutting measures are less "sustainable".

Mr de Silguy did not rule out the chance Italy could still make the grade, but he stressed any one-off measures must be supplemented by more lasting cuts.

The Commission figures showed that most countries will continue to over- shoot the Maastricht debt criteria - many seriously. However, it is already clear that the Commission favours more flexibility on the debt criterion, stating only that countries should be moving towards the 60 per cent ceiling.

Its rosy view of the next two years was based on a series of favourable economic assessments, including a prediction EU-wide growth will continue to rise, reaching 2.4 per cent in 1997 and 2.8 per cent in 1998.

Elsewhere in its report, the IMF called on Japan to speed up deregulation of its economy. It trimmed its prediction for Japan's GDP growth this year, although expecting a pick-up in 1998.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Arts and Entertainment
Film director Martin Scorsese
film
Life and Style
life
News
news

The party's potential nominations read like a high school race for student body president

Voices
A mother and her child
voices
Voices
The veterans Mark Hayward, Hugh Thompson and Sean Staines (back) with Grayson Perry (front left) and Evgeny Lebedev
charity appealMaverick artist Grayson Perry backs our campaign
Arts and Entertainment
Cold case: Aaron McCusker and Christopher Eccleston in ‘Fortitude’
tvReview: Sky Atlantic's ambitious new series Fortitude has begun with a feature-length special
ebooks
ebooksA special investigation by Andy McSmith
Voices
Three people wearing masks depicting Ed Miliband, David Cameron and Nick Clegg
voicesPolitics is in the gutter – but there is an alternative, says Nigel Farage
News
i100
News
people
Sport
Chelsea manager Jose Mourinho
footballI have never seen the point of lambasting the fourth official, writes Paul Scholes
Life and Style
Vote green: Benoit Berenger at The Duke of Cambridge in London's Islington
food + drinkBanishes thoughts of soggy school dinners and turn over a new leaf
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Recruitment Genius: Technical Report Writer

£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

Day In a Page

Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
Move over, kale - cabbage is the new rising star

Cabbage is king again

Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

Paul Scholes column

The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Frank Warren column: No cigar, but pots of money: here come the Cubans

Frank Warren's Ringside

No cigar, but pots of money: here come the Cubans
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee