World economic growth is expected to slow next year, with recent turbulence in financial markets triggered by the fallout from the U.S. subprime mortgage market clouding prospects, the IMF said in the October 2007 World Economic Outlook (WEO).
IMF Chief Economist Simon Johnson told a press briefing Wednesday that a benign financial environment had built up a sizeable "underbrush" of risky loans, relaxed lending standards, and high leverage in certain areas. When problems ignited in the U.S. subprime mortgage market, the fire "jumped" in somewhat surprising ways to other areas.
Before the turbulence erupted in August, the global economy had been expanding vigorously, with growth running above 5 percent in the first half of 2007, according to the WEO. China's economy gained further momentum, growing by 11? percent. India also continued to grow very strongly at more than 9 percent, and Russia grew by almost 8 percent.
These three countries alone had accounted for one-half of global growth over the past year. Robust expansions also continued in other emerging market and developing economies, including low-income countries in Africa.
Rapid growth in the emerging markets counterbalanced continued moderate growth of about 2? percent in the United States in the first half of 2007, as the housing sector continued to exert considerable drag. Among the advanced economies, growth in the euro area and Japan slowed in the second quarter of 2007 after two quarters of strong gains.
The IMF expects healthy growth to continue into 2008 with emerging market economies continuing to serve as the main growth engine of the world economy.
According to the latest forecast, global growth would slow from 5.2 percent in 2007 to 4.8 percent in 2008, down from the 5.4 percent rate registered in 2006. The largest downward revisions to growth are in the United States, and in countries where financial and trade spillovers from the United States are likely to be the largest.
In the United States, growth is now projected to remain at 1.9 percent in 2008, the same rate as in 2007 and a markdown of almost 1 percentage point compared to the IMF's previous projections. U.S. growth is down from 2.9 percent in 2006.
Ongoing difficulties in the mortgage market are expected to extend the decline in residential investment, while higher energy prices and weaker house prices are likely to dampen consumption spending, the IMF said. In the euro area, growth has been marked down to 2.1 percent in 2008, and in Japan it is now expected at 1.7 percent.
In the emerging markets, economies are expected to continue to expand strongly, although growth is expected to slow from the heady pace of the past two years. The Chinese economy will grow by about 10 percent in 2008, according to the IMF, and growth will also remain buoyant in other emerging markets.
In sum, the global economy has faced a significant test in recent months. Nonetheless, generally sound fundamentals should keep the global economy on course. So while growth in the coming months will be affected by the aftermath of the financial turbulence, at this stage it does not appear the impact will be dramatic. Source
IMF Chief Economist Simon Johnson told a press briefing Wednesday that a benign financial environment had built up a sizeable "underbrush" of risky loans, relaxed lending standards, and high leverage in certain areas. When problems ignited in the U.S. subprime mortgage market, the fire "jumped" in somewhat surprising ways to other areas.
Before the turbulence erupted in August, the global economy had been expanding vigorously, with growth running above 5 percent in the first half of 2007, according to the WEO. China's economy gained further momentum, growing by 11? percent. India also continued to grow very strongly at more than 9 percent, and Russia grew by almost 8 percent.
These three countries alone had accounted for one-half of global growth over the past year. Robust expansions also continued in other emerging market and developing economies, including low-income countries in Africa.
Rapid growth in the emerging markets counterbalanced continued moderate growth of about 2? percent in the United States in the first half of 2007, as the housing sector continued to exert considerable drag. Among the advanced economies, growth in the euro area and Japan slowed in the second quarter of 2007 after two quarters of strong gains.
The IMF expects healthy growth to continue into 2008 with emerging market economies continuing to serve as the main growth engine of the world economy.
According to the latest forecast, global growth would slow from 5.2 percent in 2007 to 4.8 percent in 2008, down from the 5.4 percent rate registered in 2006. The largest downward revisions to growth are in the United States, and in countries where financial and trade spillovers from the United States are likely to be the largest.
In the United States, growth is now projected to remain at 1.9 percent in 2008, the same rate as in 2007 and a markdown of almost 1 percentage point compared to the IMF's previous projections. U.S. growth is down from 2.9 percent in 2006.
Ongoing difficulties in the mortgage market are expected to extend the decline in residential investment, while higher energy prices and weaker house prices are likely to dampen consumption spending, the IMF said. In the euro area, growth has been marked down to 2.1 percent in 2008, and in Japan it is now expected at 1.7 percent.
In the emerging markets, economies are expected to continue to expand strongly, although growth is expected to slow from the heady pace of the past two years. The Chinese economy will grow by about 10 percent in 2008, according to the IMF, and growth will also remain buoyant in other emerging markets.
In sum, the global economy has faced a significant test in recent months. Nonetheless, generally sound fundamentals should keep the global economy on course. So while growth in the coming months will be affected by the aftermath of the financial turbulence, at this stage it does not appear the impact will be dramatic. Source
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