IMF cuts global growth projections for 2008

The International Monetary Fund (IMF) cut its 2008 forecast for world growth yesterday and warned that the global economy would deliver its weakest performance in five years and could slow even further.

Blaming the US sub-prime mortgage market crisis for this significant downward revision, the IMF said no country would escape the fall-out entirely.

"It is a significant slowdown. It is a global slowdown, without any question," IMF chief economist Simon Johnson told a media briefing. He declined to characterise the risks that the US would tip into a recession, but the IMF made plain that it was braced for more bad news.

"No one is exempt from a global slowdown. That is why you call it global," he said."

"The overall balance of risks to the global growth outlook is still tilted to the downside," the IMF said in an update to its semi-annual World Economic Outlook, released in October.

The IMF lowered its global 2008 growth projection to 4.1 per cent from 4.4 per cent. This would be the weakest performance since 2003, when world growth notched 3.6 per cent, and it reflects a marked slowdown from the 4.9 per cent pace achieved last year, although emerging economies have held up so far and China has not faltered.

"The financial market strains originating in the US sub-prime sector . . . have intensified, while the recent steep sell-off in global equity markets was symptomatic of rising uncertainty," it said.

The IMF said that financial upheaval had reached a new phase, "where credit concerns now extend beyond the sub-prime sector", and it would need to be watched carefully for fear it might infect the global economy.

"The main risk to the outlook for global growth is that the ongoing turmoil in financial markets would further reduce domestic demand in the advanced economies and create more significant spillovers into emerging markets."

The IMF cut its US growth forecast for this year by 0.4 of a percentage point to 1.5 per cent and lowered the euro-zone projection by half a point to 1.6 per cent. But China was expected to expand by 10 per cent.