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Global Economy is Forecast to Grow

The global economy is forecast to grow by a solid pace of 4.3 percent this year and 4.5 percent next year, the Washington-based Peterson Institute for International Economics said here on Monday.

The unrest in North Africa and the Middle East, the spike of world oil and commodity prices, as well as the deadly earthquake and tsunami in Japan will slow global economic growth for at least the first half of 2011 and increase downside risks after that, said Michael Mussa, a senior fellow at the institute.

The latest projections are roughly in line with the think tank’s earlier forecast last September of 4.3 percent and 4.4 percent for this year and next year, respectively.

An overall global recovery has been powered by a much stronger performance by emerging markets than by advanced economies, a pattern expected to persist at least through this year and next year, contended Mussa.

Inflation is clearly rising on a worldwide basis, led by surging food and energy costs.

Apart from inflation, Mussa found that other downside risks to the global economy are posed by European sovereign debt problems and the possibility of a sudden U.S. shift from fiscal expansion to fiscal consolidation.

Real gross domestic product (GDP) growth pace for the U.S. economy this year is estimated at 2.9 percent, in line with the earlier prediction of Mussa.

Nicholas Lardy, a senior fellow at the institute, held that China has come through the global financial crisis and downturn “in better shape than most countries.”

Despite a wide range of concerns about the possibility of inflation, excessive bank lending and the withdrawal of government stimulus spending in the world’s second largest economy, Lardy sees no slowdown in China’s growth as a direct result of these factors.

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