IMF Report
Confirms
Global Slowdown
As was widely anticipated, the World Economic
Outlook, the IMF's biannual survey of global prospects and
policies, is projecting a further weakening of the global economy
this year. World growth is now expected to be 2.6 percent sharply
lower than the World Economic Outlook's projection in
May of 3.2 percent and well below last year's 4.7 percent growth
rate. However, these projections were completed just before the
September 11 terrorist attacks on the United States.
The effect on
projected global growth in 2001 is likely to be moderate, because
developments in the third and fourth quarters of the year have
a limited impact on the average growth rate for the year as a
whole. In 2002, however, Kenneth Rogoff, Economic Counsellor
and Director of the IMF's Research Department, said, global growth
is likely to be "rather lower" than the 3.5 percent
presently projected. Despite these gloomy prospects, Rogoff expressed
cautious optimism about the global outlook, noting that "there
is still a reasonable prospect that a recovery will begin in
the first half of next year."
Although the
direct economic damage of the events of September 11 may
turn out to be relatively moderate, Rogoff said, the potential
indirect effects on consumer sentiment and spending, business
confidence, and risk aversion are likely to be significantly
more important.
However, while
there are clearly substantial uncertainties about unfolding events,
one should not overlook that the economic fundamentals in many
countries have improved in recent years, and, from an economic
perspective, this leaves the world somewhat less vulnerable than
it might otherwise be. These improvements, he said, together
with the aggressive response by central banks across the globe,
should help mitigate the risk of sustained reductions in consumer
and business confidence.
Projections
The baseline projection for the United States envisages
growth of 1.3 percent this year and 2.2 percent in 2002, down
from the May 2001 World Economic Outlook estimates of
1.5 percent and 2.5 percent respectively. The fallout from the
September 11 attacks will likely cause further weakening of activity
in the short-term.
The outlook
for other industrial countries, according to the IMF study, has
been revised down more significantly. In the euro area, growth
has been marked down by 0.6 percentage point of 1.8 percent,
driven by a sharp weakening in domestic demand growth, particularly
in Germany, and a greater than expected impact of the global
slowdown. Of particular concern, the World Economic Outlook
notes, are Japan's prospects, which have become "increasingly
somber." Its GDP is now projected to decline by 0.5 percent
in 2001, more than 1 percentage point worse than projected earlier,
and the economy is now likely experiencing its fourth recession
(defined as two quarters of negative real GDP growth) of the
past decade.
Prospects for
most developing and transition countries have also deteriorated,
according to the World Economic Outlook, with declines
in information technology spending affecting Asia in particular,
and deteriorating financing conditions adding to concerns in
a number of emerging markets, especially in Latin America.
