IMF: World growth to slow before recovery

Analysis

World economic growth is set to continue to slow in the H2 of 2008 before a gradual recovery in 2009, the number two official at the International Monetary Fund, John Lipsky, said Tuesday.

“The global economy is projected to slow further in the second half of 2008, with a recovery gaining pace gradually in 2009,” Lipsky said in speech to be delivered in Frankfurt, Germany, according to a copy pre-released here. The IMF predicts that global growth will crawl to 3% in late 2008 from 5% in 2007 and could climb back “toward four percent in the course of 2009.”

“The specific figures are still under review and will be released in our World Economic Outlook next month,” he said. A source close to a G20 delegation indicated at the end of August that the IMF had dropped its latest world growth projections for 2008 to 3.9% from 4.1% and 3.7% from 3.9% for 2009. “The recovery of global economic activity in 2009 would be driven by the unwinding of the effects of the more than 50% increase in oil prices in 2008 and the bottoming out of the US housing sector,” Lipsky said.

In the United States, growth is set to fall to a mere 1% in the Q1 of 2008 and increase to 1.5% by the end of 2009, he added. For the euro zone, growth will be limited to 0.75% for late 2008 and climb to 1.50% by the Q4 of 2009. In emerging economies, growth is also expected to ease from more than 8% in 2007 to more than 6% in 2008 before recovering to more than 7% in 2009.

“The global economy is facing its most difficult situation in many years as we grapple with the financial crisis that erupted last August together with the impact of high commodity prices,” Lipsky said. According to the IMF official, commodity prices are likely to “stay at much higher levels than previously in real terms and highly sensitive to views about demand and supply trends.” Lipsky said the IMF had little evidence that speculation had had a strong influence, “although it is quite possible that investor behavior can amplify short-term price fluctuations.” “While the recent moderation of international commodity prices may ease some of the pressure, inflation risks in emerging economies remain serious since they are more vulnerable to second-round effects,” he said. (The Economic Times)

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