IMF cuts global growth outlook
International Monetary Fund drops forecast to 3.2% from 3.7%, cites German, U.S. deficits.
April 9, 2003: 9:47 AM EDT
PARIS (Reuters) - The International Monetary Fund has cut its 2003 global growth forecast to 3.2 percent from 3.7 percent due to the Iraq war and stock market declines, and is particularly worried about weak German growth.
An extract of the IMF's semi-annual World Economic Outlook obtained Wednesday ahead of its scheduled release says the relatively robust forecast is based on the assumption of oil prices averaging $31 per barrel and dynamic growth in Asia and transition countries.
"... the global recovery is expected to continue during 2003, albeit at a relatively subdued pace, with GDP growth in the major currency areas remaining below potential until the end of the year," the outlook says.
The IMF's projections are based on the assumption that uncertainties surrounding the Iraq conflict are "broadly resolved" in the near term, with little spillover outside the region, and that the global economic impact is limited, the outlook says.
Its release coincided with the collapse of Saddam Hussein's rule in Baghdad Wednesday as Iraqis cheered U.S. Marines driving through the east of the city and looters moved in.
The IMF also lowered projected U.S. growth to 2.2 percent from 2.6 percent, but says the United States is likely to continue to lead the global recovery.
However, risks to U.S. growth are posed by the country's budget deficit, which could exceed 5 percent of GDP if the war continues, as well as a slump in stock markets and the high current account deficit, according to the forecast.
The IMF also cut its euro zone growth forecast to 1.1 percent from 2.3 percent as a result of weak domestic demand, fiscal policy tightening and the euro's appreciation, the outlook says.
"The situation in Germany, where GDP growth is expected to be well under 1 percent for the third year running and strains in the financial sector are becoming increasingly apparent, is of particular concern," the report says.
The IMF has cut its forecast for Germany to 0.5 percent from last September's 2.0 percent, cut its forecast for France to 1.2 percent from 2.3 percent, and for Italy to 1.1 percent from 2.3 percent.
Japan was lowered to 0.8 percent from 1.1 percent. The United Kingdom forecast was lowered to 2.0 percent from 2.4 percent.
The IMF cut its prediction for Canada's 2003 GDP growth to 2.8 percent from 3.4 percent. The forecast for Russia fell to 4.0 percent from 4.9 percent.
The head of the International Monetary Fund urged Europe and Japan Tuesday to do more to reinvigorate prospects.
IMF Managing Director Horst Koehler said the global economy in 2003 would expand by "a bit more than last year [when growth came in at 3 percent] but not a lot more."
"There is a risk of a worse outcome. Nobody can rule it out," he said, noting it was "realistic that a moderate recovery is the most likely development."
Koehler said the global economic recovery, assuming a short war in Iraq, would pick up in the second half of this year but that lingering uncertainty about terrorism means that the world's major economies need "really to accelerate reforms."
He also blamed Europe and Japan for not doing more to quicken needed reforms over the past year. |
