Europeans hint growth may head up

Mario Draghi
Mario Draghi
International Monetary Fund managing director Christine Lagarde caught commentators by surprise when she said this week the IMF would revise upward its global growth forecast in about three weeks.

''We will be revising upwards the global forecast of the economic growth,'' she told a press conference in Nairobi on Tuesday, adding it would be premature to reveal any more.

Ms Lagarde, who was wrapping up a two-day visit to Kenya, gave no reason for the revision.

When it issued its latest World Economic Outlook report in October, the IMF lowered its forecasts, saying that global growth ''remains in low gear''.

It said it expected the global economy to grow 2.9% year-on-year in 2013 and 3.6% in 2014. That represented a downward revision of 0.3% and 0.2%, respectively, from its July estimates.

The fact the United States Federal Reserve had started to change the easy-money policy it had been pursuing had slowed capital inflows to emerging-market economies as long-term yields in the US and many other economies had risen, she said.

Figures out yesterday from the OECD showed annual inflation in advanced countries picking up to 1.5% in November from 1.3% in the previous month.

The increase was mainly due to an increase in energy prices, but still left inflation below its 2013 peak of 2% recorded in July in the 34-nation Organisation for Economic Co-operation and Development.

Annual inflation jumped to 1.5% in Japan in November, from 1.1% the previous month - its highest rate since October 2008. The rise was seen as further evidence efforts by the Government and the Japan central bank to break deflation were succeeding.

In the Eurozone, where there had been concerns about deflation, annual inflation rose to 0.8% in November from 0.7% in October.

Other signs of an improving global economy include the falling of borrowing costs for Portugal and Spain, two of the worst-affected countries during the Global Financial Crisis.

The falling of borrowing costs is seen as a dramatic market turnaround for debt-laden Eurozone nations whose plight once raised fears for the bloc's survival.

After years of budget cuts and tough reforms to curb soaring debt - which unleashed mass protests - fresh hope for the economic recovery for Portugal, Spain, Ireland and Italy appeared to have won over buyers in the bond market.

European Central Bank president Mario Draghi urged caution as the bank held its key interest rate at a record low 0.25%.

''The recovery is there but it is weak, modest and fragile, meaning there are several risks - financial, economic, geopolitical, political - that could undermine easily this recovery,'' he said in Frankfurt.

''It's still premature to declare any victory.''

Falling sovereign yields help boost economies, spilling over into cheaper loans for business while easing the pressure on governments to impose tough austerity measures on their people.

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