The International Monetary Fund (IMF) just raised its outlook for worldwide economic growth for 2010. As shown in the table below (from overall economic growth for the world is now expected to be 2.5% in 2010, up from a forecast of 1.9% growth back in April.

This is still a pretty sluggish pace, especially considering that the world population is growing at about 1.2% a year according to the CIA World Factbook. It is less than half the rate that the world economy was growing in 2007, and even below the 3.1% rate of 2008, but it is a major improvement over the 1.4% decline expected for this year (down from a -1.3% growth rate expected in April).

As bad as things are here in the U.S., the IMF report shows that the U.S. is actually doing much better than other advanced economies.We are “only” expected to see a 2.6% decline in our economy this year (we were down at a 5.5% annual rate in the first quarter, or 1.375% in actual terms for the quarter) followed by a 0.8% increase for next year.

The advanced economies as a group are expected to see a 3.8% decline this year. That, however, includes the U.S., so since the U.S. accounts for a substantial part of the advanced economies overall output (apx. 40%), excluding the U.S. the numbers are even worse.

The Euro area is expected to tumble by 4.8% this year (down from a -4.2% projection in April). The biggest economy in the Euro area, Germany, is plunging 6.2%, so its economy is doing more than twice as bad as ours is. Japan is doing almost as bad a Germany, with a 6.0% decline expected for this year. Rounding out the old Axis, Italy is expected to show a 5.1% decline. Relative to the April forecast, Germany and Italy are both getting worse, while Japan has shown a slight improvement. The only advanced economy that is expected to do slightly better than the U.S. is Canada, with just a 2.3% decline.

Looking ahead to next year, we are again expected to do marginally better than the rest of our economic peers, with a extremely anemic expansion of 0.8% (which will not be enough to bring unemployment down) versus a 0.6% expansion for the advanced group as a whole. Japan and Canada are expected to outpace us next year, but according to the IMF we will be doing better than almost everyone else.

The overall improvement in the advanced group’s outlook for 2010 appears to be mostly due to the improved outlook for the U.S., where back in April no growth was forecast for the U.S. (and for the group as a whole). The projections for the Euro area only improved by 0.1%, going from a continued decline of 0.4% to a decline of 0.3%. Japan saw a big improvement in its 2010 outlook and it now stands at 1.7%, which given the last 20 years of Japan’s history is tantamount to an economic boom there.

While the U.S. is gaining share of the world economy relative to the other advanced economies, it is losing share to the developing parts of the world, most notably China and India. While the two emerging giants have not been immune to the world economic slowdown, they have held up much better than most.

This year the IMF expects China to grow 7.5% and for India to post growth of 5.4%. Next year, both are expected to see their growth accelerate to 8.5% and 6.5%, respectively. Without a doubt, that is much slower than they were growing a few years ago — in 2007, China grew 13.0% and India grew by 9.4% — but is still extremely healthy relative to everywhere else.

In other words, the pace at which they are picking up share of the world economy has actually accelerated during the downturn. In 2007, China grew 7.9% percent faster than the world as a whole (and more than that ex China), while this year it will (assuming the IMF projections are accurate) grow 8.9% faster. For India, the relative acceleration is even more significant, growing from a 4.3% lead in 2007 to a 6.8% lead this year.

This suggests to me that gaining some exposure to China and India in your portfolio is still a good thing to do. This can be done indirectly through buying U.S. multinationals such as Colgate Palmolive (CL) or more directly through ETFs (for example Power Shares India, PIN) or ADRs of companies there.

China Mobile (CHL) might be a firm to investigate for exposure to China, and ICICI Bank (IBN) is a good way to get exposure to India.

The other two BRIC countries have not fared as well in the downturn, with Russia being particularly hard hit due to the decline in Oil prices from a year ago. It is expected to see a decline of 6.5% this year before rebounding with 1.5% growth next year.The IMF cut this year’s forecast for Russia by 0.5% relative to April, but raised its outlook pretty sharply by 1.0% for next year.

Brazil has held up relatively well in the downturn but it is not immune, with an economic contraction of 1.3% this year, then a rebound of 2.5% positive growth next year. Brazil can also be played through an ETF like Brazil i-shares (EWZ) or individual ADRs such as Tele Norte (TNE).

Read the full analyst report on “CL”
Read the full analyst report on “PIN”
Read the full analyst report on “CHL”
Read the full analyst report on “IBN”
Read the full analyst report on “EWZ”
Read the full analyst report on “TNE”
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