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World economy in robust health despite US slowdown: IMF
By Jitendra Joshi
AFP
WASHINGTON
Petroleumworld.com 04 12 07
The world economy is poised for its longest expansion since the early 1970s despite a US housing slowdown and financial market instability, the International Monetary Fund said Wednesday.
In its latest World Economic Outlook report, the IMF said growth in global gross domestic product (GDP) would reach 4.9 percent both this year and next.
While down from 5.4 percent in 2006, that would take the current expansion into its fifth and sixth years, the global economy's best performance since before the 1970s oil shocks.
"By and large things look very good," IMF chief economist Simon Johnson told a news conference, playing down what is likely to be America's weakest economic performance in five years.
Unlike three decades ago, according to Johnson, growth is far more widespread as China and India extend dramatic transformations, while Europe and Japan look set to outstrip US growth this year.
"Everyone around the world is sharing in this prosperity. I hesitate to say that that is unprecedented, but it is very impressive," he said."While the US indeed may have sneezed, it appears to be a mild sneeze so far, and not likely to spread."
Given the right policy mix worldwide, Johnson added, "I think we can sustain global growth around 5.0 percent a year for some time to come."
Eurozone growth is on course to overtake the United States for the first time since 2001, although both regions are expected to lose steam this year, the Fund said in its twice-yearly report.
The IMF fretted about the potential for a sharper slowdown in the United States, whose GDP growth was forecast to dip to 2.2 percent in 2007 from 3.3 percent last year.That was a big downgrade from the 2007 growth pace of 2.9 percent that the IMF had predicted in September.
There are "some very tentative signs" that the US housing market could be stabilizing, but the Fund warned that the property shakeout has some way to run.
After turmoil on global equity markets in late February, the report also highlighted "the risk of a deeper and more sustained retrenchment from risky assets if financial markets continue to be volatile."
But Johnson called the recent volatility "a limited and largely temporary pullback from riskier assets."
" We see solid underlying macroeconomic fundamentals as providing an anchor for skittish financial markets," the chief economist said.
Oil prices, a perennial headache for policymakers in recent years, have calmed and that has helped to keep a lid on inflation in the world's leading economies, the IMF said.
The 13 euro members were seen averaging GDP growth this year of 2.3 percent, compared to 2.6 percent in 2006, which was the common currency region's best performance in six years.
" The euro currently is at a reasonable level," Johnson said, downplaying concerns expressed by many European politicians that the strong currency is hurting the continent's competitiveness.
The recovery in Japan "remains robust," driven by corporate investment, higher bank lending and export growth, the IMF said. It saw 2007 growth in the world's second-biggest economy of 2.3 percent, up a touch from last year's 2.2.
Japan is getting back on track "but with deflation not completely defeated, the BoJ (Bank of Japan) will need to maintain a supportive monetary stance," Johnson said.
The Fund said that policy tightening in China, where authorities are keen to restrain growth before it runs out of control, will see the economy's GDP growth dip to 10.0 percent this year from 10.7 percent in 2006.
But fixed-asset investment in China has grown at a "torrid pace" and the economy is still at risk of overheating, Johnson warned.
He also renewed IMF calls for more flexibility in China's "tightly managed" exchange rate. The fast-growing country stands accused by many US politicians of massaging its currency to gain an unfair trading edge.
Middle East economies still enjoy a "favorable" road ahead despite the moderation in oil prices, but should develop their non-energy sectors, the IMF recommended.
Growth in Latin America was seen slowing somewhat, hurt by the US slowdown, but the outlook for Africa "remains very positive" thanks to economic stability, debt relief from rich creditors and higher capital inflows.
AFP 11 2024 GMT 04 07
Copyright© 2007 AFP. All Rights Reserved.
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