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IMF slashes global outlook for next year

The IMF on Wednesday slashed its global economic forecast for next year, warning that turbulence stemming from a crisis in the US housing sector could crimp growth worldwide.

The world economy is expected to expand 4.8 percent next year after a 5.2 percent pace projected for this year, the IMF said in its twice-yearly World Economic Outlook (WEO) report.

The downgrade comes in the wake of turmoil in global financial markets in August that prompted the IMF to reverse course after an unusual update in July in which it raised its global growth forecast for next year to 5.2 percent.

The greatest threat to the world economy is the financial market unrest stemming from the high-risk US subprime mortgage sector, where loans were given home buyers with poor credit histories.

This has affected banks and lenders worldwide and made credit conditions more difficult, said the report, released ahead of the annual meetings of the IMF and the World Bank that open tomorrow in Washington.

"Risks to the outlook lie firmly on the downside, centering around the concern that financial market strains could continue and trigger a more pronounced global slowdown," the IMF said.

"Thus, the immediate task for policymakers is to restore more normal financial market conditions and safeguard the continued expansion of activity," it said.

The IMF report said that, despite the heightened risks, the global economy is poised for "solid" growth next year.

"The expansion is projected to remain above the long-term trend, notwithstanding recent financial market turbulence, with emerging market and developing countries leading the way," the IMF said, citing mainly low inflation levels and robust gains in trade volumes worldwide.

Meanwhile, the public can now "blog" the IMF's chief economist on such matters as global growth or turmoil in financial markets.

Economic counselor Simon Johnson wants people to send in questions and comments on the World Economic Outlook.

"We're trying to use new technology to reach existing and potentially new audiences. So far, the response looks promising," Johnson said.

His blog can be found at blog-research.imf.org.
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