Europe economy recovering - IMF

By Brian Love

PARIS (Reuters) - Europe's recession will end in the euro zone and in Britain in the second half of 2009 but will not end so early in many of the emerging market economies on its eastern flank, the International Monetary Fund said on Thursday.

In a report that upgraded its global economic forecasts, the IMF said low inflation offered "ample room to maintain very low interest rates" and other less conventional steps central banks in advanced economies have taken to fight the worst downturn in decades.

Governments should not pull fiscal stimulus too fast either, it said in its World Economic Outlook, where it also predicted further substantial rises in unemployment.

It forecast gross domestic product (GDP) rising 0.3 percent in the 16-country euro zone in 2010 and 0.9 percent in Britain after contractions of 4.2 and 4.4 percent respectively in 2009, which amounted to substantial upgrades of previous predictions for next year.

"The pace of decline in activity appears to be moderating, but the recovery will likely be moderate during the coming quarters," said the IMF.

It forecast GDP growth of 1.8 percent across the emerging market economies of eastern Europe as a whole in 2010 after a 5.2 percent drop in 2009. But within that group it saw continued if milder recessions in the Baltics, Hungary and Bulgaria, offset by sizeable output gains in the likes of Poland and Turkey.

"The rebound in Europe is likely to be slow," the IMF said, noting that much of eastern Europe would miss out on the stronger rebounds in Asia and other emerging market economies because cross-border capital flows would remain lower for some time.

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