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Strategies & Market Trends : Three Amigos Stock Thread -- Ignore unavailable to you. Want to Upgrade?

To: Ditchdigger who wrote (9218)	10/1/1998 1:59:00 AM
From: LTK007	Read Replies (1) \| Respond to of 29382

More "cheery" News IMF Sees Slowdown In Global Economic Growth By Janet Guttsman WASHINGTON (Reuters) - The International Monetary Fund forecast Wednesday a steep slowdown in global growth and said countries should stand ready to cut interest rates to guard against the risk of recession. An unusually pessimistic report from the international lending agency said world economic growth would fall to 2.0 percent this year, less than half the 4.1 percent growth rate seen in 1997 and down sharply from the 3.1 percent global growth rate forecast in the spring. Output growth would recover to 2.5 percent next year, but IMF chief economist Michael Mussa said the ''balance of risks'' was clearly stronger on the downside -- indicating the forecasts might still have to be revised down. ''Even allowing for significant downside risks we would not quite reach the threshold of a global recession, but clearly we have been approaching that state,'' he told a news conference. ''It is a risk with which policymakers need to be concerned.'' The IMF, along with other international institutions, has been revising its growth forecasts down steadily since the start of last year's Asian crisis -- a financial storm which started in Thailand, moved to engulf most of the developing world and is now affecting rich industrialized countries too. Its World Economic Outlook predicted a deep recession in many Asian countries this year, including a steeper than earlier expected 2.5 percent fall in Japanese output, where the authorities urgently needed to solve banking sector problems. The IMF, which put together multibillion dollar rescue deals for Thailand, Indonesia and South Korea last year, said Thailand and South Korea could return to growth next year. Russia, which devalued the rouble and defaulted on some debt this summer, had replaced Asia as ''the epicenter of global financial market pressures'' and the IMF said Russia would lurch back into recession with a 6.0 percent decline in 1998 output. This would hit growth prospects across the region. Mussa said the IMF, often criticized for recommending that borrowing countries raise interest rates to defend their currencies, was now recommending easier policies for countries accounting for 90 percent of global gross domestic product. ''The need is to move to easier monetary policy around the world and that is what we are recommending for 90 percent of the world's economy,'' he said. He said Tuesday's U.S. interest rate cut, a reduction of a quarter of a basis point in the key Federal Funds rate, was appropriate and further rate cuts could be on the cards. ''The Fed is right in its general policy stance to recognize that the world economic environment has changed and that is going to have an impact on the U.S. economy,'' he said. ''They've sent the right signal about the direction of the movement.'' The IMF forecast 1998 growth of 3.5 percent in the United States, slowing to 2.0 percent next year. It had earlier predicted growth of 2.9 percent and 2.2 percent respectively. But Mussa also said the IMF was suggesting high interest rates for countries facing external pressures and credibility problems at home. ''For these countries, unfortunately there is no easy way out of present difficulties through the pursuit of easy monetary policies,'' he said. Mussa said ''substantial financial package'' could be helpful for Brazil, which is the latest victim of what was once described as the Asian economic flu. He said the Brazilian government and the IMF agreed on the need for vigorous action to reduce Brazil's fiscal deficit, and so restore investor confidence and bring interest rates down. ''The details are yet to be fully elaborated,'' he said. The chance of a global recession was an outlying risk ''in the distribution of probability outcomes'' but not an extreme one, Mussa said. ''We could get a worse (global) outcome than we are projecting if we saw both a continuation of negative growth in Asia, a sharper falloff than we are forecasting in Latin America and other emerging markets and a more substantial slowdown in North America and Western Europe,'' he said.