World growth slows on credit crunch
Updated: 2007-10-17 23:00
WASHINGTON - The world economy is solid but will lose a step next year as growth slows in the United States and Europe, the International Monetary Fund said on Wednesday, warning that disarray in global credit markets had clouded near-term economic prospects.
The IMF maintained its previous forecast, made in July, for 2007 global economic growth of 5.2 percent, but lowered the forecast for 2008 by 0.4 percentage point to 4.8 percent.
"While underlying fundamentals supporting growth are sound and the strong momentum in increasingly important emerging markets is intact, downside risks from the financial markets and domestic demand in the United States and western Europe have increased," the IMF said in its semi-annual World Economic Outlook.
The IMF said the global expansion was now firmly led by China, whose economy is expected to grow by 11.5 percent in 2007 and slow slightly to 10 percent next year.
The IMF's largest downward revisions in its growth forecasts were in the United States and in countries affected by the troubles in the US subprime mortgage market, especially Canada, Mexico and some Asian economies. It said the US economy was set to grow just 1.9 percent next year, a sharp downward revision from the 2.8 percent forecast in July.
The problems in the US subprime mortgage market, which has seen a wave of foreclosures, spread quickly worldwide because the loans were packaged into complex financial securities and resold to investors.
The turmoil triggered a tightening of credit conditions in August, prompting central banks around the world to respond with massive injections of liquidity to ensure the global financial system did not feeze up. The US Federal Reserve cut interest rates sharply in an attempt to limit economic damage from the credit crunch and market turbulence.
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