Global economic growth will slow to a 4.3 per cent pace this year and regain momentum in 2006, although oil prices are a growing risk to the outlook, the International Monetary Fund said today.
In its twice-annual economic outlook, the IMF said the world's economy was returning to a slower and more sustainable pace after averaging 6 per cent in late 2003 and early 2004 - the fastest clip in three decades.
IMF Report
The IMF World Economic Outlook, released ahead of its spring meeting of shareholder governments in Washington this weekend, said a recovery in the euro area and Japan, which have been economic laggards in recent years, coupled with still-buoyant activity in emerging Asian countries should nudge growth up to 4.4 per cent in 2006.
"The expansion will continue to be underpinned by accommodative macroeconomic policies, albeit to a lesser extent than in 2004," the IMF said.
The lender said the global expansion was becoming more uneven, with growth still dependent on the United States and China and a disappointing performance by Europe and Japan.
There are more downside than upside risks for the global economy, the IMF said, with rising oil prices a problem that should not be ignored.
Apart from the lingering threat of terror attacks, the IMF warned, financial market conditions could tighten if US interest rates rose sharply and hurt domestic demand, while a sharp fall in the US dollar cannot be ruled out if the record American current account gap unwound in a disorderly way.
According to IMF data, a permanent $5 increase in oil prices could lower global gross domestic product by up to 0.3 percentage points. "In practice, the impact over the last year has been less than feared, partly because higher prices have been a consequence of strong global growth and partly reflecting the credibility of monetary policies," the IMF said.