IMF warns of global recession

Daily Telegraph: IMF warns of global recession

There is now a one-in-four chance of a global recession, the International Monetary Fund has warned, as it slashed its expectations for economic growth across the Western world.

By Edmund Conway in Washington
Last Updated: 1:22am BST 10/04/2008
  
The IMF confirmed that Britain faces growth of 1.6pc this year – well below the Chancellor’s forecasts
 
As well as becoming the first major international institution to declare that the US faces a recession this year, the Washington-based fund warned in unusually explicit terms that the euro is now overvalued, while the Japanese yen and Chinese renminbi are both undervalued.

In yet another blow to Alistair Darling, the IMF confirmed that Britain faces thin growth of only 1.6pc this year and next – well below the Chancellor’s forecasts. It also warned that with the public finances deep in the red there is little leeway for Mr Darling to cut taxes if the credit crunch leaves a serious dent in the economy.

Its World Economic Outlook, the authoritative biannual examination of the economy, said: “The financial market crisis that erupted in August 2007 has developed into the largest financial shock since the Great Depression, inflicting heavy damage on markets and institutions at the core of the financial system.” It predicted that global growth would slow to just 3.7pc this year: the slowest rate in five years. This represents a 0.5 percentage point cut since the IMF last updated its figures only three months ago.
 
It said America’s economy would expand by just 0.5pc this year and 0.6pc the next, adding: “The US is projected to tip into a mild recession in 2008, despite aggressive rate cuts by the Federal Reserve and timely implementation of a fiscal stimulus package.”

It would be the worst performance for the American economy for well over a decade.

Chief economist Simon Johnson said he expected US house prices to fall by a further 10pc this year, having already dropped by a tenth last year.

The whole of the Western world would be badly hit, the report added, growing by 1.3pc this year and the next – the worst since 2001.

This bleak assessment makes the IMF among the most pessimistic forecasters. If the financial crisis worsens, it added, the consequences for the world economy will be even more dire.

“The IMF staff now sees a 25pc chance of growth slowing to 3pc or less in 2008 and 2009, equivalent to a global recession,” it concluded.

Mr Johnson said he expected significant movements in currencies to continue for the next five years. “Our view is that the dollar – in real effective terms – is now closer to its equilibrium value than at any time since the late 1990s, although it is still somewhat on the strong side,” he said.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/04/10/cnimf110.xml

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