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28. June 2007

IMF's global growth forecast rises

The International Monetary Fund (IMF) is raising its forecast for world economic growth this year and has predicted that inflation will also rise.

Yields on 10-year Treasury notes climbed to the highest in five years on June 12 on speculation the pace of economic growth will push up borrowing costs.

The European Central Bank, the Bank of Japan, the People's Bank of China and the Bank of England have all indicated that further rate increases may be in the pipeline this year, while economists at Merrill Lynch and Goldman Sachs now expect the US Federal Reserve to leave rates at a six-year high rather than cut them.

2007 will mark the fifth consecutive year of world growth in excess of 4 per cent - the longest streak of sustained expansion in three decades.

The IMF in April predicted global growth of 4.9 per cent this year and next after 5.4 per cent in 2006. The fund currently forecasts growth in the US, the world's largest economy, to slow to 2.2 per cent this year from 3.3 per cent in 2006 amid a slump in its housing market led by defaulting sub-prime mortgage borrowers.

The world's major central banks have increased borrowing costs over the past year to contain inflation. Policy makers are concerned that sustained global growth will fuel wage and price increases as companies operate at full capacity and unemployment drops.

China's central bank officials said the bank may raise rates for a third time this year to curb inflation and take the steam out of a surging stock market.

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