IMF Predicts Slowing Global Economy in 2008 Due to US Housing

WASHINGTON - January 29, 2008 - The world economy will slow significantly in 2008 but the United States will avoid recession, the International Monetary Fund forecast Tuesday.

The stimulus package being hashed out between the U.S. Congress and the White House, along with the Federal Reserve’s recent cut of a key interest rate, should provide a modest boost to U.S. economic growth by the middle of the year, IMF officials said.

“This is actually a good combination of policies for the U.S.,” Simon Johnson, economic counselor and director of the research department at the IMF, said during a press briefing.

Slower U.S. growth and credit market turmoil stemming from U.S. housing market woes also will hinder the global economy, the IMF said.

“The five-year long global expansion has begun to moderate in response to the spreading effects of financial disruptions,” Johnson said.

Rising home foreclosures and falling home prices caused U.S. financial markets to drop steeply in recent months, as major banks such as Citigroup Inc. and Merrill Lynch & Co. Inc. have written down billions of dollars of securities that include bad home loans.

U.S. economic growth will slow to 1.5 per cent in 2008, Johnson said, down from an estimated growth rate of 2.2 per cent in 2007. The 2008 projection is lower than the IMF’s October 2007 prediction of 1.9 per cent.

The IMF now sees world economic growth slowing to 4.1 per cent this year, down from 4.9 percent in 2007.

The reduction is the second cut in a row in the IMF’s estimate of global economic growth for this year. Last July, the IMF estimated the world economy would grow 5.2 per cent in 2008, and in October the estimate was reduced to 4.4 per cent.

The estimates were included in an update of the IMF’s World Economic Outlook, which is issued twice a year. The next update will be issued in April.

Copyright © 2008 The Canadian Press