IMF predicting a global economic downturn

April 10, 2008|Associated Press

WASHINGTON - The United States is headed for a recession, dragging world economic growth down along with it, the International Monetary Fund concluded in a sobering new forecast yesterday that underscored the damage inflicted from the housing and credit debacles.

The IMF's World Economic Outlook served as a reminder of just how swiftly economic and financial fortunes in the United States and beyond can unravel, affecting people, investors, and businesses around the globe. The fund slashed growth projections for the United States - the epicenter of the woes - and for the world economy. The fragile state of affairs greatly raises the odds that the global economy could fall into a slump, the IMF said.

Economic growth in the United States is expected to slow to a crawl of just 0.5 percent this year, which would mark the worst pace in 17 years, when the country had suffered through a recession. The United States won't fare much better next year; the IMF projected the US economy will grow by a feeble 0.6 percent in 2009, when measured by an annual average.

"The US economy will tip into a mild recession in 2008 as the result of mutually reinforcing cycles in the housing and financial markets," the IMF said.

David McCormick, the Treasury Department's point person on international affairs, called the IMF's projections "unduly pessimistic."

Many private economists and members of the US public believe the country has already fallen into its first recession since 2001. For the first time, Federal Reserve chairman Ben S. Bernanke acknowledged last week that a recession was possible.

An increasing number of analysts think the US economy, which grew by 2.2 percent in 2007, started shrinking in the first three months of this year and is still contracting. Under one rough rule, if the economy contracts for six straight months, it is considered to be in a recession. A panel of experts at the National Bureau of Economic Research that determines when US recessions begin and end, however, uses a broader definition, taking into account income, employment, and other barometers.

When the IMF projected US economic growth using another measure - comparing activity in the fourth quarter of one year with the previous year - the country's economy would actually shrink 0.7 percent this year, said the IMF's chief economist Simon Johnson. By that measure, the economy would grow by a still lackluster 1.6 percent in 2009, he added.

Given the problems of the United States - the world's largest economy - the performance of the global economy also will be strained.

The IMF now expects the world economy, which grew by a robust 4.9 percent last year, to slow sharply. The fund is projecting the global economy to grow by 3.7 percent this year and 3.8 percent next year.