Growth is decelerating in the two largest economies as finance ministers and central bankers gather in Washington for the semi-annual meeting of the International Monetary Fund and World Bank starting today. Higher gasoline prices have sapped consumer spending in the U.S., while tighter monetary policy has curbed demand in China. Japan, the world’s third largest economy, is struggling to right itself in the wake of a record earthquake, while Europe is battling a debt crisis that claimed its third victim -- Portugal -- last week.
“The headwinds we’ve run into are pretty strong,” said David Hensley, director of global economic coordination at JPMorgan Chase & Co. in New York. “The fundamental forces driving the recovery have not been stopped. We’re bending but not breaking.” JPMorgan Chase sees growth of 4.2 percent this year, down from its 4.7 percent forecast in January.
The enduring expansion means that global stock markets are still a buy, even as the world economy “loses some of its acceleration,” said Jim O’Neill, chairman of Goldman Sachs Asset Management in London. “The bull market in equities continues,” he said. He sees the Standard & Poor’s 500 Index rising to between 1,400 and 1,450 by the end of the year from yesterday’s close of 1,314.52.
The IMF argues that the rebound has become “more self- sustaining” as increasing private-sector demand replaces waning public support in promoting growth, according to its World Economic Outlook issued this week.
“This is not a time for complacency, but the good news is that the recovery is really under way,” IMF Managing Director Dominique Strauss-Kahn said yesterday in an interview on Bloomberg Television’s “InBusiness” with Margaret Brennan. The Washington-based lender forecasts world growth of 4.4 percent this year and 4.5 percent in 2012, after 5 percent in 2010.
Expansion expectations nevertheless fell for a second consecutive month in April, according to a Bank of America Merrill Lynch survey of fund managers published this week. Forty-two percent of investors polled also said they see a period of below-trend growth and above-trend inflation.
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