The world economy may grow "slightly" more than 3 percent this year, the chief of the International Monetary Fund (IMF) said, reducing the lender's forecast from the 3.7 percent made in September.
"Consumers and investors remain cautious, and the recovery in the world economy is weaker than earlier anticipated," Horst Koehler, the fund's managing director, said in a speech at the Bank of Spain.
Central bankers have room to cut lending rates in order to ensure growth, he said, urging against "undue pessimism." Unless there is a prolonged war in the Middle East, the rebound is likely to continue, Koehler said in his prepared remarks.
"The economic policies of the larger advanced economies remain broadly supportive, and there is some further scope for monetary easing should that prove necessary," Koehler said.
The speech didn't quantify the impact of a US-led war against Iraq on the world economy. A yet-to-be published report by the IMF says that a war may cut as much as 2 percentage points off the forecast for growth of 3.3 percent this year, according to Handelsblatt, a German financial newspaper.
The US economy, the world's largest, is forecast to grow 2.4 percent this year, same as last year, AFX News reported, citing monetary fund projections to be published next month. The forecast for growth in the 12-nation euro zone this year was lowered to 1.3 percent from 2.3 percent in September, AFX reported. This year's forecast for Japan dropped to 0.5 percent from 1.1 percent.
The countries of Latin America, currently in the most difficult economic situation, are showing signs of a recovery, Koehler said.
To help boost growth, countries in the region need to enact fiscal policies that slow the growth of public indebtedness, have freer exchange rate regimens, improve their transportation and education systems and fight corruption, he said.
Koehler called on world leaders to complete the Doha round of trade negotiations successfully, in such a way that will encourage economic development.
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