The IMF has slashed its forecasts for global growth, it emerged Thursday, as finance ministers gathered in Ottawa, Canada to talk about the prospects for the world's faltering economy.
IMF managing director Horst Kohler, speaking ahead of the postponed World Bank-IMF meeting in the Canadian capital this weekend, said he now expects the world economy to grow at just 2.4 percent this year and next. This would be below the 2.5 percent level generally acknowledged to signal global recession and represents a sharp downward revision from the 2.6 percent for this year and 3.5 percent for next year the IMF was predicting only last month.
"We have to recognize that we face an extraordinary degree of uncertainty in the aftermath of the Sept. 11 attacks," Kohler said, warning that economic forecasting in the wake of the attacks was "something like trying to read the tea leaves."
Predictions for US growth have been reduced particularly sharply, with the IMF now expecting it to expand by 1.1 percent this year and 0.7 percent next year -- less than a third of the 2.2 percent growth expected a month ago.
Official figures showing the US economy contracted at an annual rate of 0.4 percent in the third quarter of this year had already raised concerns that a sharp downturn was under way before the suicide attacks on New York and Washington. The new IMF projections suggest it now expects recovery in the US to be slower and more painful than expected.
US Treasury Secretary Paul O'Neill later took issue with the IMF's estimate of 0.7 percent growth for next year, and said he had made a bet with Kohler that the forecast "was off by a lot."
News Thursday that the jobless total in the US has soared to an 18-year high added to mounting pessimism about the outlook for the world's biggest economy, however.
The number of people out of work and claiming benefits rose to 3.83 million in the week ending Nov. 3 -- the highest total since February 1983, although a fall in the number of fresh claims in the last week, to 444,000, suggested a slight easing in the rate of layoffs.
Europe's economy will not escape the slowdown in the US, Kohler warned, and the IMF is downgrading its forecast for European growth to 1.7 percent growth for this year, and 1.4 percent for next year, from previous estimates of 1.8 percent and 2.2 percent respectively. Again, this suggests the downturn will be longer lasting than optimistic projections earlier in the year had implied.
Welcoming last week's half-point interest rate cut by the European Central Bank, Kohler said that weak inflation in the 12-member eurozone "leaves room for further easing, if necessary."
Despite setting out a markedly more pessimistic assessment of the prospects for the world economy than the IMF made in October, Kohler said he remained sanguine about the medium-term prospects for the world economy as the concerted interest rate cuts by central banks started to take effect.
"Major fundamentals in the global economy are still good, and we should not confuse ourselves now by embarking on gloom and doom scenarios," Kohler said.
"What is needed now is to build confidence through sober analysis and sound policies, while making sure that we are prepared to deal with a worse outcome if necessary."
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