Economic recovery in the United States will drive a global economic upturn later this year but the outlook will remain mixed for poor countries, the International Monetary Fund (IMF) said yesterday.

Over recent months, there have been increasing signs that the global slowdown has bottomed out, most clearly in the United States and to a lesser extent in Europe and some countries in Asia, the IMF said in its semi-annual World Economic Outlook (WEO) report.

The Fund projects 2.8 percent global economic growth this year, up from 2.4 percent predicted in November and higher than the 2.5 percent posted in 2001.

Growth in the United States  and countries with close economic links  has been revised significantly upward, as the pace of recovery has exceeded expectations, said the report. The US economy accounts for 21 percent of world economic output.

IMF Chief Economist Kenneth Rogoff credited the prospects of a turnaround to the US Federal Reserves successive interest rate reductions, and to stimulus spending in Europe.

Last Septembers terrorist attacks in the United States had a smaller economic impact than initially anticipated, the Fund said, adding that consumer and business confidence has strengthened. The report also cited declining oil prices since late 2000 as among the catalysts for the rebound.

Nevertheless, the 183-country financial institution said it is concerned that oil prices have risen significantly since late February, reflecting  among other things  world anxiety over possible US military action in the Middle East and the deteriorating regional security situation.

Improvement in IT sector

The Fund said it sees signs of recovery in emerging markets, particularly Korea and other Asian countries buoyed by nascent improvements in the information technology (IT) sector. This could not be said for Latin America, however, and the overall outlook remains decidedly mixed, the agency said.

In the Funds view, contagion from the financial meltdown in Argentina has been limited because the crisis was well anticipated and international capital flows had already fallen to low levels.

The situation in the once-affluent Latin American nation itself remains extremely difficult, the Fund acknowledged, and a substantial decline in output appears unavoidable. The agency reiterated its calls for fiscal stringency.

The 237-page report said that other Latin American countries were likely to see a strong improvement, particularly in Mexico and Central America, whose economies march in close step to that of the United States.

Domestic stimulus

It said growth in China, and to a lesser extent India, would be relatively resilient while the highly open economies in the rest of the region  like Malaysia, Indonesia and Singapore  would benefit from a recovery in external demand backed by domestic stimulus measures, although much will depend on the IT sector.

In the Middle East, growth has been adversely affected by lower oil prices as well as the deterioration in the security situation. The Fund said the global economic rebound would help.

Turkey is gradually recovering from the severe recession of 2001, it added, but the economy remains vulnerable to adverse shocks. In contrast, growth in the Commonwealth of Independent States has been relatively unaffected by the slowdown, buoyed by solid growth in Russia and Ukraine.

Activity in central and eastern European economies  except Poland  has also held up well, abetted by robust domestic demand and foreign direct investment.

The Fund said that growth in poor and African countries was surprisingly well sustained on the back of strong domestic policies and the ending of a number of conflicts in Africa.

It credited the Heavily Indebted Poor Countries (HIPC) debt-relief initiative for helping free up productive capital.

Growth in the HIPC countries is projected to pick up further in 2003 and beyond, although it is important to recognise that in the past the IMFs forecasts for African countries have proved consistently optimistic, said the report.

Despite some signs of recovery in global output, many countries in Africa continue to face depressed prices for their non-oil commodities. These include coffee, exports of which are dominated by Kenya and Ethiopia, and cotton, much of which is exported by Benin and Burkina Faso.

Whats more, the United States continues to pose what the Fund termed significant risks to the nascent global recovery. These, it said, include the US current account deficit, low personal savings, and the overvaluation of the US dollar in the face of an undervalued euro.

Risks to global economic prospects also arise from increasing tensions in the Middle East and a possible hike in oil prices, the Fund said.