IMF Says With U.S. in Crisis, Global Economy in Peril

Group predicts global expansion to slow to 3.7%

The global economic outlook is increasingly grim with the U.S. mired in a recession from a housing meltdown whose effects are still spreading, the IMF said April 9. Global expansion is set to slow to 3.7% in 2008. The growth estimate is a half point lower than the January WEO update, it noted.

The U.S. economy, the world's biggest, is likely in a "mild recession" and will stagnate through much of 2009 as housing prices slide further and credit conditions remain difficult. For the world economy, there is a 25% chance of dropping below three percent growth in 2008 and 2009, which according to the IMF would be the equivalent of a global recession. "Moreover, growth is projected to remain broadly unchanged in 2009," with growth in the advanced economies likely to fall "well below potential," the 185-nation institution said.

The U.S. is poised to grow a paltry 0.5% in 2008, the IMF said, despite a multibillion-dollar government stimulus package. Growth for 2009 will improve to 0.6%, a "modest" recovery expected as financial institutions clean up their balance sheets. The risks to global growth remain "tilted to the downside," the IMF warned in the report, a key plank of its spring meetings with the World Bank in Washington on April 5 and 6.

"The principal downside risk comes from the possibility that financial strains could deepen," Simon Johnson, the IMF chief economist, said . "A negative spiral or 'financial decelerator' remains a possibility," he added. The IMF on April 9 estimated the credit crisis could spawn massive losses of $945 billion.

Among other advanced countries, growth in western Europe is projected to slow "well below" potential due to financial strains, trade spillovers and housing downturns in some countries, the IMF said. Growth in the 15-nation eurozone is set to decelerate to 1.4% in 2008 and 1.2% in 2009, down 0.2% and 0.7%, respectively, from the January update.

Japan, the world's second-largest economy, is poised to slow to pace of 1.4% this year with little improvement at 1.5% in 2009.

By contrast, emerging and developing countries have proven more resilient to the distress because they are underpinned by their increasing integration into the global economy and a commodity price boom, the IMF said. Their combined growth will decelerate to a still-robust 6.7% expansion in 2008, off 0.2 percentage points from the prior forecast, and slip to 6.6% in 2009. China will continue to lead growth, expanding at 9.3% in 2008 and 9.5% in 2009, down 0.7 point and 0.5 point, respectively. India is poised for a 7.9% expansion this year, down 0.5 point, and 8% in 2009, off 0.2 point.

Copyright Agence France-Presse, 2008

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