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And I'm Audie Cornish. The U.S. economy is gaining traction and trouble in Europe is easing. That's the view today from the International Monetary Fund. It released the world economic outlook, its forecast for the global economy. The assessment provided the backdrop for discussions at the IMF World Bank spring meetings in Washington this week. NPR's John Ydstie reports.
JOHN YDSTIE, BYLINE: The IMF's forecasters say the world economy will grow three and a half percent overall this year, a bit faster than they thought back in January. Part of the reason is an upgraded forecast for the U.S. economy, which the IMF describes as pulling itself up by its boot straps.
Still, U.S. growth will be quite modest, 2.1 percent this year and 2.4 percent next year, according to the fund. Its chief economist, Olivier Blanchard, says that's partly because U.S. consumers are still facing headwinds.
OLIVIER BLANCHARD: Some households are burdened with very high debt. This leads them to have low consumption, low demand. Foreclosures are weighing on housing prices and on housing investment.
YDSTIE: As for emerging markets like China, the IMF says they're slowing, but unlikely to experience crash landings. China's slowdown is, in large part, due to the economic struggles of its big export markets, Europe and the United States. And, because of that, the IMF's deputy director of research, Jorge Decressin, says the fund believes both the role of exports in China's economy and its trade surpluses will continue to be sharply reduced.
JORGE DECRESSIN: If you go to our last world economic outlook, we foresaw that the current account surplus of China in 2016 was going to be around seven percent of GDP. Our present forecast is closer to four percent.
YDSTIE: And back in 2007, before the economic crisis decimated the appetite for imports in the U.S. and Europe, China's surplus was more than 10 percent of its output. The decline in the trade surplus has been accompanied by an increase in the value of China's currency of almost 15 percent.
Nicholas Lardy, a China specialist at the Peterson Institute for International Economics, says this development undercuts longstanding arguments by American exporters and the Obama Administration that the Chinese government is suppressing the value of its currency to expand its exports.
NICHOLAS LARDY: I don't think that you can really make a case that the currency is significantly undervalued today. Their current account surplus is a small fraction of what it was four years ago. It's much less than many other countries that have surpluses, and the likelihood is it's going to come down further over the course of this year.
YDSTIE: China loosened the reins further on its currency yesterday, allowing it to float in a broader range against the U.S. dollar.
As for potential threats to the world economy, the IMF's Blanchard points to the possibility of a further spike in oil prices.
BLANCHARD: But the main risk remains that of another acute crisis in Europe.
YDSTIE: The IMF said Europe's economy will shrink three-tenths of a percent this year and grow just under one percent in 2013. Currently, investors are most worried about Spain's ability to pay its debts. They pushed borrowing costs for the government up again today, but the IMF officials expressed confidence in Spain, saying its government has struck the right balance of austerity and support for growth.
John Ydstie, NPR News, Washington. Transcript provided by NPR, Copyright NPR.
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