WASHINGTON (Xinhua) - The International Monetary Fund (IMF) and World Bank wrapped up its annual meetings Saturday amid gridlock in the US Congress that threatens to plunge large chunks of the world into recession.
Next Thursday stands as a crucial deadline - the last day the federal government is certain to have enough money to pay its bills, and failure to pay up could have devastating ripple effects across the globe.
Speaking on the annual meetings' main theme, IMFC Chair Tharman Shanmugaratnam told reporters Saturday the debt ceiling and chronic US budget crisis is a "critical issue for all of us."
The current US political gridlock and ongoing budget impasse impacts confidence, and failure to instill confidence could impact private investment needed in the next phase of the recovery, he said.
"Private investment hinges on confidence," he said. "And if we don't get a clear resolution ... it's going to be hard to see how that confidence is going to come back."
Desmond Lachman, resident fellow at the American Enterprise Institute, told Xinhua a US debt default would amount to a massive economic shock both in the United States and worldwide.
"It would lead to major market disruption and would require major cuts in US public spending that would certainly tip the US into a deep recession," he said.
Brookings Institution Senior Fellow Barry Bosworth told Xinhua he does not believe there will be a debt default but that there will be delays in other payments.
Still, recent days have seen positive signs, with US President Barack Obama talking with Congressional Republicans Thursday and Friday. But there remain a number of obstacles in the road before a deal is cut.
Douglas Rediker, a visiting fellow at the Peterson Institute, who recently represented the United States on the IMF Executive Board, told Xinhua the US political system is built to be representative and fair, and at times coming to an agreement is messy. But after nearly 250 years in existence, the world's longest running democracy has remained stable overall, despite what he called occasional political "hiccups."
Many analysts believe this game of political brinkmanship will end in a last-minute deal, just as on several other occasions over the last few years.
Bosworth said Congressional gridlock stems from divisions among the general public. Indeed, the United States stands at an ideological fork in the road, with passions running high over which direction the country should take. Many Americans are calling for a European-style government with safety nets and higher taxes, while many others prefer a smaller government, lower taxes and less of what they bill as government overreach.
A MULTI-POLAR ECONOMY AND NEW RISKS
Meanwhile, the IMF continues to deal with the recovery from the worst global downturn since the Great Depression.
The organization this week outlined several worldwide economic trends, such as what IMF chief Christine Lagarde called "a multi-polar global economy," during a keynote speech at Friday's plenary session.
Developing countries are expected to boost their share of worldwide gross domestic product (GDP) from about half to nearly two-thirds over the next decade, setting the stage for more widely disbursed economic power, and Lagarde called on the IMF to mirror that shift.
At the same time, the global economy is becoming more integrated, which will fuel growth but heighten risks, and the IMF head called on the Fund to boost its capacity to deal with those changes.
The IMF said global growth is still in "low gear," forecast to stand at 2.9 percent in 2013 - below the 3.2 percent recorded in 2012 - and to rise to 3.6 percent in 2014.
US growth is expected to rise from 1.5 percent this year to 2.5 percent in 2014, driven by a recovering housing market and rising household wealth. The euro zone is expected to slowly pull out of recession and see 1 percent growth in 2014, predicted the IMF.
Emerging markets will see strong growth at 4.5 percent to 5 percent in 2013 and 2014, bolstered by solid domestic demand, recovering exports, and supportive fiscal, monetary and financial conditions, the IMF said.
Advanced economies will drive much of the growth uptick, and growth in major emerging markets, although still strong, is expected to be weaker than the IMF forecast in July. That stems partly from the end of stimulus packages put in place after the global downturn.
A coming transition in US monetary policy has also led to new risks, as US long-term interest rates have increased more than expected. While the US Fed recently decided not to shut off its money faucet, known as quantitative easing, tightening down the road poses risks, the IMF said.
The IMF on Saturday recommended the United States raise its debt ceiling, agree on a medium term fiscal roadmap and strengthen oversight of the so-called "shadow banks" - financial institutions such as hedge funds that escape government regulation. The IMF called on the euro area to take actions including structural reforms to spur growth, and recommended that Japan make moves including invigorating growth and complimenting recent consumption tax increases with measures to contain entitlement spending.
ASIA LEADING WORLDWIDE GROWTH
Asia is expected to remain the world's economic growth leader, with an overall growth of around 5.3 percent for 2014, the IMF said Friday.
"In our view Asia will remain the global growth leader," Anoop Singh, director of the IMF's Asia and Pacific department, told reporters. Overall, "we are essentially optimistic," he said, despite what he billed a complex global economic environment.
Emerging Asia is projected to grow at around 6.3 percent and 6.5 percent in 2013 and 2014 respectively, according to the IMF's October 2013 Asia and Pacific Economic Outlook released Friday.
Growth in China is projected to decelerate to 7.6 percent in 2013 and 7.3 percent in 2014 respectively as structural forces move China steadily onto a lower growth plane, the report said. Still, inflation will remain in check, due to excess capacity in a number of industries and stable food prices, the report said.
Japan's growth upswing has been a bright spot in the region as the so-called Abenomics program - a stimulus package meant to rev up the country's economic engines - has reignited the economy and is starting to lift the country out of chronic deflation. Financial conditions have eased markedly as a result of the exchange rate depreciation and the asset price rally triggered by quantitative and qualitative monetary easing, noted the IMF.
In India, the fallout from recent financial stress has likely contributed to greater vulnerability of corporate and bank balance sheets and a further downward revision of growth forecasts, which were already very low in historical context. This reflects persistent supply constraints and slow progress on structural reforms. Despite weak demand, however, food prices will likely keep headline inflation close to double digits, the IMF said.
In Indonesia, which is seen as Southeast Asia's next major investment destination, growth is expected to slow given tighter financing conditions and weakening investment, before some stabilization next year. In most other ASEAN (Association of Southeast Asian Nations) economies, growth should pick up somewhat. External demand will improve while domestic demand is likely to prove resilient to tighter domestic financial conditions, partly reflecting stronger public infrastructure spending, the report said.