From: Reuters
Published April 3, 2008 06:22 PM

IMF again cuts global growth forecast for 2008

By Lesley Wroughton

WASHINGTON (Reuters) - The International Monetary Fund on Thursday cut its 2008 outlook for world economic growth for the second time this year, in a move that acknowledged housing and credit problems in the United States were exacting a heavy toll on the global economy.

The IMF said it expects the pace of global growth to slow to 3.7 percent this year, down from its January forecast of 4.1 percent and lower still from the 4.8 percent rate it predicted in October last year.

The latest revision puts world growth at its lowest since 2002, when growth was 3.1 percent, according to IMF data.


"I can confirm the IMF's current aggregate world growth forecast for 2008 is 3.7 percent," an IMF spokesman said, confirming reports about the IMF's World Economic Outlook due on April 9.

Earlier on Thursday, IMF Chief Economist Simon Johnson said the U.S. economy has come to "a virtual standstill" and will remain weak in coming quarters owing to deeper problems in housing and credit markets.

Still, Johnson avoided saying the United States was in recession. Media have reported that the IMF growth outlook will put U.S. economic growth for 2008 at 0.5 percent from a previous forecast of 1.5 percent.

"Notwithstanding the strong response from U.S. policy-makers, tighter financial conditions, higher energy prices, softer labor markets and the weak housing market all conspire to weigh heavily on the (U.S.) economy in the near term," Johnson told reporters.

Speaking before the release of the twice-yearly World Economic Outlook, he said economic growth in Europe would also slow this year, perhaps with some lag, because of the United States' weak performance.

He said the possibility of deeper and more protracted strains in financial markets posed the biggest threat to the world economy, with economic growth in major emerging economies also likely to weaken, although it should stay above trend.

"An intensification of problems in the U.S. housing and credit markets could further slow the U.S. economy and weigh on the arc of recovery," Johnson said.


Johnson said Europe was particularly vulnerable to financial spillovers from deeper credit market problems in the United States, while a possible correction in some of Europe's housing markets could weigh on consumption and consumer confidence.

He said the market woes could also slow financial flows into emerging and developing countries, including in Eastern Europe, which have benefited from large banking inflows in recent years.

The IMF is expected to lower its growth forecast for the 15-nation euro zone to 1.3 percent in next week's WEO, European Union sources told Reuters in Brussels, a downward revision from 1.8 percent in January.

Eurogroup Chairman Jean-Claude Juncker, said on Thursday that the IMF's growth forecast for the euro zone was slightly over-pessimistic.

The IMF's Johnson said weaker global growth could slow exports and prompt a fall in commodity prices, which have stayed strong despite the global economic downturn.

He also cautioned that spiraling food prices and higher oil prices had pushed up inflation pressures worldwide.

Economists at the Washington-based Peterson Institute on Thursday forecast world growth of 3.8 percent in 2008, down from 4.7 percent in 2007, led by a decline in demand growth in the United States.

They said the U.S. economy was on the verge of, and perhaps already in, outright recession and put U.S. growth at barely more than 1 percent in 2008.

"So far, the evidence points to less of a slowdown in other industrial countries, while most emerging economies appear likely to maintain quite strong, albeit somewhat slower growth," the institute said.

(Editing by Dan Grebler)

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