WASHINGTON (Washington Post) -- The world economy is rebounding from recession “better than we thought likely” and will expand by more than 4 percent this year, the International Monetary Fund's top economist said Wednesday.

Growth is uneven. China is projected to grow by a world-leading 10 percent in 2010, while major European nations are expected to grow by a combined 1 percent. The United States is projected to grow by 3.1 percent -- better than the 2.3 percent average growth projected by the IMF for the advanced economies.
The IMF's forecast of 4.2 percent growth in world output in 2010 represents a marked increase from its projection in January of 0.3 percent growth for the year. For 2011, the IMF now forecasts growth of 4.3 percent. By contrast, the global economy shrank by 0.6 percent in 2009 as world trade slumped and credit froze, the IMF said.
But the generally optimistic report included a strong dose of caution: the rebound in growth has been supported largely by government programs, and these need to be curtailed in coming months to help control government deficits that have grown so large they pose their own economic risks.
“A global depression has been averted. The world economy is recovering and recovering better than we thought likely,” IMF economic counselor Olivier Blanchard said as the agency released its latest World Economic Outlook, its main economic forecast.
But “the risk has shifted location,” Blanchard said, adding that the amount of money being borrowed by developed world governments “is threatening to lead to a debt explosion.”
The forecast marks a turning point of sorts. A year ago, the world economy was contracting, and the major concern was how to stabilize a system in which lending had all but stopped, consumer spending in the developed world had slowed, and unemployment was rising.
Massive government spending and stimulus programs helped avoid the worst in the short term but cannot be continued, Blanchard said.
The longer-term outlook “remains unusually uncertain,” Blanchard said. “Risks are generally to the downside,” particularly from government borrowing and still weak levels of demand among households and businesses in developed countries.
Blanchard also highlighted an issue that some lawmakers and labor groups have focused on in the United States as well -- the need for China and some other Asian countries to allow their currencies to appreciate. He said a stronger yuan would make Chinese exports more expensive, encourage Chinese consumers and businesses to spend more, and help “rebalance” a flow of trade that has allowed the country to accumulate some $2.5 trillion in foreign reserves.
According to the new IMF forecast, India's economy is also projected to expand rapidly in 2010, reaching 8.8 percent growth.
Next year, U.S. economic growth is predicted to slow to 2.6 percent from this year's 3.1 percent. The U.S. economy contracted by 2.4 percent last year, the IMF said.
Photo: Olivier Blanchard, economic counselor of the International Monetary Fund, IMF.