WASHINGTON D.C., United States, January 31, 2008 – The International Monetary Fund (IMF) has put countries across the world – both rich and poor – on warning that the global economy will see its weakest performance in five years. And it says developing countries including those in the Caribbean could face greater risks as the financial turmoil in the United States plays out across the globe.
Last October, the IMF predicted 4.4 percent world economic growth for 2008, but in its semi-annual World Economic Outlook report cut its forecast and projected that growth this year is likely to slow to 4.1 percent, from 4.9 percent in 2007. According to the IMF, this would be the worst performance since 2003, when the world economy grew by 3.6 percent.
“The revision is mostly accounted for by a weaker outlook for advanced economies,” said Simon Johnson, the fund’s chief economist.
“Growth in emerging markets, the engine of global growth, is expected to generally hold up well, but here too we expect growth to also slow this year.”
The IMF blamed its gloomier outlook on the U.S. substandard mortgage crisis and its spillover into world financial markets. It cautioned that growth in the United States, the world’s largest economy, could grind down to a negligible 0.8 percent in 2008 and also cut its estimate of 2007 U.S. growth from 2.6 percent to 1.5 percent.
The fund added that while emerging markets will perform better, they too will not escape unscathed.
It said China and India will lead growth in output, due to strong domestic demand.
Inflation will also be a major issue as it continues to rise.
“In advanced economies, inflation pressures are expected to subside sooner or later as economies slow, although there are serious concerns about possible second-round effects,” Johnson said.
It is also expected that developing countries could face greater risks as a result of the financial turmoil in the US.
“The main risk is that the ongoing turmoil in financial markets could further weigh on domestic demand in advanced economies and that a sharper slowdown could then impart more significant spillovers to emerging market and developing countries,” Johnson explained.
“Emerging market countries that are reliant on capital inflows could be directly affected.”