The International Monetary Fund cut its forecast for global growth next year and warned that even its new prediction may be too optimistic given threats posed by the sell-off in credit markets.
The IMF lowered its projection for global expansion next year to 4.8 per cent in its semiannual World Economic Outlook, from an estimate of 5.2 per cent in July. A weaker outlook for the US was mostly to blame, as the fund reduced its forecast to 1.9 per cent from 2.8 per cent.
The agency also cut its forecast for Ireland as the economy slows following the downturn in the property market. The IMF now projects real GDP growth of 4.6 per cent this year, compared to the 5 per cent forecast last April.
Its forecast for the Irish economy next year has been reduced more dramatically - from 3.7 per cent last April to 3 per cent in its latest report.
"I would emphasise that there are serious risks ahead," Simon Johnson, the IMF's chief economist, said of the global picture at a press conference in Washington. "The smoke has not yet cleared" from the financial-market turmoil," he said.
"Robust" growth in China, India and Russia, which accounted for half the global expansion over the past year, will compensate for the American slowdown, the fund said in its report. It said the dollar was vulnerable to more falls in spite of its recent sharp decline. The US currency has seen an orderly retreat so far but remains overvalued compared with its medium-term fundamental level, IMF officials said yesterday.
Simon Johnson, chief economist, said the weakening dollar was part of a normal process of economic rebalancing and was positive for the global economy provided that other currencies also adjust. Mr Johnson said the dollar's fall had been anticipated by the IMF for some time. But his comments conflict with the views of France and some other euro zone members who are expected to raise concerns over the strength of the euro at this weekend's meetings of the Group of Seven leading economies.
The IMF has little sympathy for struggling euro zone exporters hit by the euro's rise. Its World Economic Outlook says the euro "continues to trade in a range broadly consistent with medium-term fundamentals".
- (Financial Times service/Bloomberg)
