The International Monetary Fund has projected the United States will make a "solid" recovery from recession in mid-2010, but warned of major risks including the real-estate crisis and rising interest rates. In its annual report on the world's biggest economy, the IMF projected US gross domestic product (GDP) would shrink at an annualized rate of 2.5 percent in 2009 and post modest 0.75 percent growth in 2010. The outlook was better than the IMF April forecasts of a 2.8 percent contraction this year followed by flat growth in 2010.

"The staff's outlook remains for a gradual recovery" followed by a "solid recovery projected to emerge only in mid-2010," the multilateral institution said. "Recent data suggest that the sharp fall in output may now be ending, although economic activity remains weak," the IMF said.

The IMF noted that recent economic indicators were pointing to a slowing pace of deterioration, especially in the labor and housing markets which are key to economic recovery and stability.

However, "the combination of financial strains and ongoing adjustments in the housing and labor markets is expected to restrain growth for some time," it said. Economic slack would increase, pushing up unemployment to a peak "close to 10 percent" in 2010 and driving core inflation -- consumer prices minus food and energy to "very low levels," it said.

The overall consumer price index was expected to fall by a half percentage point in 2009 and rise by 1.0 percent in 2010.

The US economy, which entered recession in December 2007, is struggling with the worst downturn in decades. GDP -- a broad measure of goods and services output -- shrank by 5.7 percent in the first quarter after a brutal 6.3 percent contraction in the 2008 fourth quarter.

The IMF estimates were less rosy than the latest US official figures. The Federal Reserve, in May, estimated the economy would contract between 1.3-2.0 percent in 2009 and grow at a modest pace between 2.0-3.0 percent in 2010.

The US Treasury Department, responding to the IMF report, emphasized the IMF's evaluation represented "an independent judgment."

The IMF said there was "unusual level of uncertainty" in its latest projections.

Among the "significant downside risks," the 185-nation institution cited the real-estate crisis, marked by spiking foreclosures and falling home prices, as well as a slump in the commercial sector; rising interest rates that are pressuring both the government and businesses; and the global economic and financial crisis.

"Much will also depend on developments abroad, including progress made in strengthening financial institutions and markets," it said.

In its evaluation of US economic policies, the IMF repeated praise of the economic stimulus plan, saying that "macroeconomic policies are providing welcome support to demand." The IMF also gave high marks to the government's support of the beleaguered financial sector. "Steps to stabilize financial and housing markets are having noticeable effects on financial conditions," it said.

Nevertheless, the IMF cautioned, "once a sustainable recovery is underway," the government needs to engage in an exit strategy to withdraw its increased massive role in the economy in a way to avoid market disruption.

At the G8 meeting, US Treasury Secretary Timothy Geithner said that since there was no recovery in place "it's too early to shift towards policy restraint."

The IMF also said it considered the dollar slightly overvalued, since it "is presently only modestly above the level implied by medium-term fundamentals."

But it noted "much will also depend on the evolution of foreign demand for US assets, underscoring the importance of fiscal and financial market reforms."

In a separate report, the US Treasury said that mainland China's Treasury bond holdings fell in April for the first time in 11 months. China, however, remains by far the biggest holder of US bonds, despite years of trying to diversify its reserves away from the US dollar.

BRAZIL

Brazil's government is confident the country's economy will show growth in the second quarter compared with the first, Planning Minister Paulo Bernardo said according to the Estado news agency. Speaking in an interview, the minister said first-quarter GDP results released by the country's IBGE statistics institute gave encouragement that the economy would show recovery through the end of the year.

"There is a belief within the government that the second quarter will show a positive result in relation to the first quarter, and even better, that we're going to accelerate in the two following quarters and arrive at the end of the year with a much better pace of growth," Bernardo said.

Brazil's IBGE reported the economy shrank 1.8 percent in the first quarter from the same quarter in 2008, moving the country into technical recession for the first time since 2003. The first-quarter contraction, however, was smaller than a decline of about 2.25 percent forecast by economists.

"The result was in fact less negative than projections indicated," Bernardo said. "Alongside the fact that we've seen several positive indicators after March, this confirms the government's thesis that we will see a shorter crisis than other countries."

Bernardo noted, however, that investment figures seen in the latest GDP data were still lagging, leaving room for Brazil's central bank to continue to ease local interest rates. Brazil's central bank rate committee will meet this week to decide on whether to cut Brazil's reference Selic rate from its current 10.25 percent annually. The bank is seen cutting the rate by up to three quarters of a percentage point. The monetary authority has cut the rate by 3.5 percentage points so far this year in an effort to stimulate economic growth.

Brazil posted growth of 5.1 percent in 2008. However, it saw a 3.6 percent contraction of the economy in the fourth quarter of the year under the impact of an international credit crisis and a slowdown of the global economy.

PERU

The Central Reserve Bank of Peru said that it has become more pessimistic about growth in the Andean nation this year and next year. They are still forecasting growth for this year and next year; however, on they lowered the forecast for growth in gross domestic product for 2009 to 3.3 percent from a previous forecast of 5.0 percent.

The central bank lowered its forecast growth in GDP in 2010 to 5.5 percent, down from a previous forecast of 6.0 percent. The central bank said public-sector investments are seen expanding by 49.4 percent this year.

Central Bank President Julio Velarde, at a press conference, said easier monetary policy and a fall in inventories will also help to boost growth. The central bank noted that inventory adjustments were a large factor in weaker growth in the first quarter, when GDP expanded by only 1.8 percent.

The central bank has eased monetary policy this year, dropping the reference interest rate to 3.0 percent from 6.5 percent.

They are also forecasting growth in domestic demand of 2.4 percent in 2009, down from a previous forecast of 5.0 percent. Domestic demand is seen expanding 5.7 percent in 2010.

The central bank now is forecasting a surplus in the trade balance for this year and next year, as opposed to is previous forecasts of trade deficits for 2009 and 2010. It said exports will reach $24.60 billion this year, while imports are seen totaling $23.45 billion. The government sees exports in 2010 at $27.10 billion, with imports at $26.08 billion.

The central bank sees a central government non-financial fiscal deficit of 1.8 percent of GDP this year, and a deficit of 1.7 percent of GDP for 2010. It said that it has a forecast of 3.2 percent of GDP, for the deficit in the current account of the balance of payments in 2009. That deficit in the current account will narrow slightly to 3.1 percent of GDP in 2010.

Peru's GDP expanded by 9.8 percent last year.

ASIA

CHINA

The Chinese government's stimulus spending, which has lifted domestic demand amid a severe export slump, should help China's economy grow at a pace of 7.5 percent this year and 9 percent in 2010, says a report prepared by an association of financial institutions.

The forecast by the Institute of International Finance, whose members include some 370 of the world's largest commercial and investment banks, is shy of Beijing's own target for full-year growth of around 8 percent this year but more optimistic than some other forecasts. The World Bank has forecast about 6.5 percent growth for China's economy this year, though its president, Robert Zoellick, said that China's economy could grow faster than expected.

The IIF said in a report that China's economy has seen a quick turnaround from the end of last year, when its government unveiled a 4 trillion yuan ($585 billion) stimulus program and ordered banks to help finance public-works projects. Those measures helped the Chinese economy in the first quarter. The IIF now expects growth in the second half of the year to exceed 8 percent.

The IIF expects the Chinese government will be unwilling to let the yuan appreciate against the dollar until the export sector sees some recovery. It says the yuan likely will strengthen 1 percent to 6.8 yuan to the dollar at the end of the year, and 3 percent in 2010 to 6.6 yuan to the dollar.

"The government is cautious about the economic outlook, believing that the recovery supported mainly by public investment is still fragile, and has indicated that it will introduce new measures quickly if needed to sustain growth," it says in its report. IIF members are in Beijing this week for a spring membership meeting.

INDIA

Despite falling exports, the Indian economy would grow by 6.6 percent in the current fiscal year on the back of strong domestic market and resilience, economic think-tank Centre for Monitoring Indian Economy (CMIE) said. However, the economy is likely to bounce back to 9 percent growth path by 2010-11 when the impact of poor exports demand is overcome.

"Growth during 2009-10 will be a combination of two very divergent stories... In 2009-10, real GDP will grow by a tepid 6.6 percent," CMIE said.

The divergence relate to the resilience and handsome growth of domestic markets and to the falling international demand which is adversely affecting India's exports, trade, transport and export oriented industries, it said.

Though export accounts for 13 percent of India's GDP, the impact of that on the trade and transport sectors would have a "significant impact on India's GDP computations in 2009-10". Trade and transport sectors have a cumulative 20 percent share on the GDP.

"Once this direct and indirect impact of poor exports demand is overcome, India is expected to bounce back to its 9 percent growth trajectory. We expect this to happen in 2010-11," CMIE said.

Prime Minister Manmohan Singh had said that the GDP would expand by at least 7 percent during 2009-10. Private sector lender HDFC Bank revised India's growth forecast upwards to 6.5 percent for this fiscal year on the back of increase in demand and signs of recovery in industrial production.

Withstanding the global liquidity crisis, the Indian economy surprised many by growing by 5.8 percent in the last quarter of the previous fiscal year driven by growth in trade, finance and community, social and personal services.

"The finance, insurance, real estate and business services group is expected to grow by 9 percent. The overall services sector is expected to grow by 8.2 percent," CMIE said.

India's GDP grew by 7.7 percent in during the first half of 2008-09.

SINGAPORE

Singapore retail sales suffered their biggest drop since 1999 as shoppers cut back on big-ticket items such as cars and furniture amid the city-state's worst ever recession.

The statistics department said that retail sales fell 11.7 percent from a year earlier after dropping 7.3 percent in March and 5.5 percent in February.

The government also said it slightly revised up its first quarter unemployment rate to 3.3 percent from 3.2 percent initially reported in April. The jobless rate was 2.5 percent in December.

"The weakness in consumption initially reflected a shock to confidence, but personal incomes are now suffering as well," said Robert Prior Wandesforde, senior Asia economist with HSBC.

Singapore expects its economy to shrink up to 9 percent this year, which would be its worst contraction since splitting from Malaysia in 1965. The recession, which began in the second quarter of last year as exports plunged, has started to eat away at jobs and hurt consumer confidence.

The April retail sales numbers are also a bad omen for second quarter gross domestic product growth. Singapore's GDP plunged a seasonally adjusted, annualized 14.6 percent in the first quarter from the previous quarter, following a 16.4 percent drop in the fourth quarter.

The unemployment rate will likely rise, further undermining consumer demand, Morgan Stanley said in a report recently.

Many of the new jobs recently created by projects in the pharmaceutical, chemical, retail and hotel sectors were from investments laid out years ago, and fresh capital outlays are slowing, it said.

"Job losses could soon catch up when the capital expenditure recession invariably intensifies and consumer strength is likely to stay subdued in 2010," the report said.

Morgan Stanley said it expects Singapore's economy to shrink 10 percent this year and grow 3 percent next year.

Sales of motor vehicles fell 28 percent, furniture and household equipment dropped 11 percent, and apparel and footwear slid 6.1 percent, the department said in a statement.

Sales fell a seasonally adjusted 3.1 percent from March.

EUROPE / AFRICA / MIDDLE EAST

AUSTRIA

Austria's economy will need until 2013 to return to pre-crisis levels, the country's biggest bank said, when it presented the first rise in its economic indicator since March 2007.

Bank Austria, a unit of Italian bank UniCredit (CRDI.MI), said its economic indicator had risen to -2.5 in May, up from -2.9 in April, indicating that the Alpine economy was reaching the trough of the recession.

But it warned against getting too excited.

"The economic indicator is still at a very low level and clearly negative," Bank Austria economist Stefan Bruckbauer said in a statement. "The small rise in May merely shows that the downturn is slowing after the bad start of the year."

Bruckbauer said he expected gross domestic product to continue to decline in 2010, albeit only slightly, a similar projection to the Austrian central bank.

"As the medium-term upswing will be only subdued, it will be only in four to five years that the Austrian economy will have reached the level of before the crisis," he said.

The rise of the indicator was helped by a boost to consumer confidence which Bank Austria credited to the fact that Austrians felt the impact of income tax cuts in their wallets from April, when tax reform meant to help the economy kicked in.

Business confidence was helped by a slower decline of order intake and favorable price trends, Bank Austria said.

Bank Austria's indicator is designed to predict the annualized change of gross domestic product over the next six months. Austria's GDP shrank by 2.6 percent in the first quarter, and Bank Austria said it expected it to decline by 0.5 percent in the second.

For the full year of 2009, the bank expects a 3.5 percent contraction, followed by a 0.3 percent decline in 2010.

BELGIUM

The Belgian economy contracted by slightly more than previously estimated in the first quarter of 2009, the country's central bank said. Seasonally adjusted gross domestic product (GDP) fell by 1.7 percent quarter-on-quarter, compared with an initial figure in April of 1.6 percent. The contraction was the same as in the fourth quarter of 2008. On a year-on-year basis, the contraction was 3.1 percent, against the April estimate of 3.0 percent.

The bank reported that the contribution to GDP of the manufacturing sector dropped by 3.8 percent in the first quarter from the fourth of 2008, of construction by 2.5 percent and of services by 1.2 percent. All components of domestic demand fell, except for public spending, which rose by 0.4 percentfrom the fourth quarter.

Corporate investment and household spending fell 3.0 percent and 0.5 percent respectively.

Exports of goods and services fell 10.5 percent, while imports dropped by 10 percent. Total employment fell for the first time since 2003.

CYPRUS

Cyprus's Central Bank recently forecast that the island's economy would grow 0.4 percent in 2009, lower than government forecasts and marginally higher than those of the European Commission.

'According to these forecasts the real rate of GDP growth in Cyprus is expected to reach 0.4 percent in 2009 and 0.7 percent during 2010,' Governor Athanasios Orphanides told an economics conference.

It is a considerable deterioration from the outlook prepared by the central bank in December 2008, which then forecast Cypriot growth at 2.0 percent in 2009 and 2.5 percent next year.

The European Commission has forecast Cyprus growth at 0.3 percent in 2009, while the Finance Ministry expects it to be around 1.0 percent.

'Our new forecasts took into account the particularly negative external environment and the fact that for the past 10 to 15 years the Cypriot GDP has shown a large degree of correlation with the average rate in euro zone members or the EU, which is now being affected by the crisis,' Orphanides said in a prepared text to the Consultative Economic Committee, convened at regular intervals by the island's Finance Ministry.

However, he said that Cyprus was less exposed because the crisis had generally affected heavy industry and manufacturing in most EU countries. Cyprus represents about 0.2 percent of the euro zone economy and is mainly services-based.

RUSSIA

Russia’s economy contracted the most in 15 years in the first quarter after industrial production plunged and the government’s 3 trillion rubles ($97 billion) in stimulus spending failed to boost companies and banks.

Gross domestic product tumbled an annual 9.8 percent, compared with growth of 1.2 percent in the previous quarter, the Moscow-based Federal Statistics Service said in a statement on its Web site. The preliminary estimate on May 15 was a 9.5 percent contraction.

“The government may be forced to devalue the ruble further to bolster exporters and spend its stimulus package more aggressively,” said Danila Levchenko, chief economist at Moscow-based Otkritie Financial Corp. “The results are worse than any forecasts as the economy is being derailed by a slump in manufacturing and property development.”

The world’s biggest energy supplier is falling into its first recession in a decade after the global slowdown sapped demand for its commodities and companies struggled to find funds. The government’s stimulus package has failed to spur bank lending, even as the central bank cut its main interest rates three times since April.

“Aggressive cuts in official interest rates over the past six months have not fed through to lower borrowing costs,” Neil Shearing, a London-based analyst at Capital Economics, wrote in a report last week. “A sustained recovery is unlikely much before the second half of next year.”

Manufacturing fell 23.5 percent in the first quarter, compared with a revised 6.6 percent expansion in the same period last year. GDP may slump as much as 8 percent in 2009, Economy Minister Elvira Nabiullina said in May, after growth of 5.6 percent in 2008 and 8.1 percent the year before.

President Dmitry Medvedev said recently that the Russian economy will rebound “more quickly than had perhaps been expected.”

The economy contracted in May at the slowest pace since October, shrinking 6.8 percent from a year earlier, as slumps in manufacturing and service industries eased after record declines in April, according to VTB Capital’s GDP indicator, a gauge of economic growth. Rising crude oil prices will help the country narrow its budget shortfall and reduce the use of the Reserve Fund, one of its two sovereign wealth funds, according to Prime Minister Vladimir Putin during a meeting in Moscow.

The deficit, Russia’s first in a decade, may reach 10 percent of GDP this year, according to the Finance Ministry. The Reserve Fund may be exhausted by the end of next year, Finance Minster Alexei Kudrin said.

Urals crude, Russia’s chief export blend, has averaged $49.43 a barrel this year. The country’s revised 2009 budget is based on an average price of $41.

The recovery in oil prices is unlikely to bolster Russia’s economic performance, according to Rory MacFarquhar, a Moscow-based economist at Goldman Sachs Group Inc.

“We have long argued that oil prices do not have a direct impact on activity, since they are almost entirely taxed away by the state,” he wrote. “In the past, high oil prices were accompanied by strong credit inflows, which do have a stimulative impact. But we do not expect a rebound in credit under current circumstances, given the damage already suffered by both domestic and foreign lenders.”

Goldman predicts a contraction of 7.5 percent in GDP this year, while the International Monetary Fund on said it expected the economy to shrink 6.5 percent. Alfa Bank, Russia’s largest privately owned bank, expects the economy to contract 5.7 percent.

UNITED KINGDOM

The economy is stabilizing but growth will not return until the beginning of 2010, and then it will still be slow, the top business lobby group said recently. In its latest forecast, the CBI said gross domestic product (GDP) would likely flatten out during the second half of 2009.

"The UK economy is stabilizing, with the worst of the quarterly falls in GDP behind us, but it will take until the beginning of next year before we see a return to growth," it said, adding that this growth will be "modest".

It predicted the economy would retract by 0.1 percent in the third quarter of this year, 0 percent in the fourth, and grow by 0.1 percent and 0.3 percent in the first two quarters of 2010.

"The return to growth is likely to be a slow and gradual one; difficult credit conditions are still affecting business behavior," said CBI director general Richard Lambert. He noted some analysts had begun to speak of "green shoots" in the recession-hit economy, including the National Institute of Economic and Social Research (NIESR) which said that GDP grew in April, but expressed caution.

"It will take some time before we can be sure these shoots have roots we can depend on for sustainable growth and, in the meantime, the government must do everything it can to help firms get access to credit," he said.

The CBI forecast that by the end of the recession, the economy will have shrunk by a cumulative 4.8 percent, including 3.9 percent this year, after five successive quarters of retraction.

This is not as severe as the recession of the early 1980s, when GDP fell by a cumulative 5.9 percent, it said, and predicted growth of 0.7 percent in 2010.

The CBI said the labor market was proving to be "even more flexible than hoped", with private sector employees accepting wage freezes and short-time working, and said this would limit job losses this year. Yet unemployment is still likely to continue rising to a peak of 3.03 million or 9.6 percent in the second quarter of 2010.of GDP in 2009-2010 financial year and 12.6 percent the following year.

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