Global growth to fall in 08, recover in 09 - IMF

17 July 2008 20:58  [Source: ICIS news]

WASHINGTON (ICIS news)--Global growth will decline in the second half to an average of 4.1% for the year, with reduced but still strong expansion in developing economies offsetting sharper slowdowns in the US and Europe, the International Monetary Fund (IMF) said on Thursday.

 

“The slowdown in global growth, which started last summer, is expected to continue through the second half of 2008, with only a gradual recovery during 2009,” the IMF said in its latest world economic outlook.

 

The fund said global growth decelerated to 4.5% in the first quarter of 2008, down from 5% in the third quarter of 2007, with activity slowing in both advanced and emerging economies.

 

“The first quarter slowdown was somewhat less sharp than predicted in the April 2008 outlook,” the 185-nation group said.  “However, recent indicators suggest a further deceleration of activity in the second half of 2008.”

 

“In advanced economies, business and consumer sentiment have continued to retreat, while industrial production has weakened further,” the fund said, in part due to increasing energy costs. “There have also been signs of weakening business activity in emerging economies,” the fund added.

 

The IMF forecasts that US economic growth will moderate to a 1.3% average for the year as a whole. Annual growth for a normal economy is generally regarded as 3% or slightly better. 

 

However, the US performance outlook represents an upward revision, the IMF said, because incoming data on the US first quarter appears to be better than the fund’s economists had expected.

 

Nevertheless, the IMF said, the US economy is projected to contract moderately during the second half of the year - with consumer spending dampened by rising oil and food prices and tight credit conditions - before starting to gradually recover in 2009.

 

The fund said its growth projections for the euro area and Japan also show a slowdown in activity in the second half this year.

 

Slowing economies of the developed nations will in part be offset by continuing if somewhat moderated expansion in developing economies, the fund said.

 

“Growth in these economies is projected to ease to around 7% in 2008-09 from 8% in 2007,” the IMF outlook said.  “In China, growth is now projected to moderate from near 12% in 2007 to around 10% in 2008-09.

 

Continuing growth among developing nations is crucial to the US economy because strong US export sales to those countries - aided in large measure by the weak dollar - has helped sustain US business.

 

The IMF was established in the closing days of World War II to promote international monetary co-operation and stability, foster economic growth and employment and to provide financial assistance to countries to help ease balance of payments problems.

 

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By: Joe Kamalick
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