International Monetary Fund predicts US boost to world economic growth

The International Monetary Fund is to revise up its forecast for world economic growth this year, reflecting the astonishing performance of the US economy.

The new forecast for growth at 4.2 per cent this year, due to be published on 12 April in the twice-yearly World Economic Outlook, compares with an earlier forecast of just 3.5 per cent.

The detail of the forecast, obtained late yesterday by Reuters, put expected UK growth at 3 per cent this year, compared with 2.8 per cent in Germany, 3.5 per cent in France, and 2.7 per cent in Italy. Growth in Euroland is faster than the earlier forecasts. It predicts a further pick-up in Germany and Italy in 2001, but slightly slower growth in France and just 2 per cent in the UK. That is lower than the 2.25-2.75 per cent rise in GDP pencilled in for 2001 in last month's Budget.

The IMF sees the US growing at 4.3 per cent, with inflation slightly higher than last year at 2.5 per cent. It also predicts a huge US current account deficit - 4.4 per cent of GDP, which it warns could threaten world economic stability.

In a separate document published yesterday, the Fund said the euro was undervalued and its current weakness was "undesirable". It implied that the misalignment of the key euro exchange rate against the dollar, reflected in Euroland's current account surplus and the US current account deficit, could "heighten the risks of abrupt exchange rate reversals and of protectionist pressures".

The unpublished forecast does foresee a soft landing for the US, with growth slowing to 3 per cent in 2001, compared with its earlier prediction of 2.6 per cent for that year. US GDP rose 4.1 per cent in 1999. But the IMF has been predicting a slowdown in the US for the past three years. In contrast, the IMF said Japan's economy, in recession for a decade, would not bounce back as quickly as projected, growing 0.9 per cent this year.