IMF predicts global downturn in 2008/09
Written by admin on Wednesday, April 9th, 2008 in UK economy, World Economies.
The International Monetary Fund has been the latest organisation to forecast slower economic growth in the world economy over the next two years as a result of the global credit crunch.
In its forecast the IMF has suggested that the world economy would slow to 3.7% this year and 2009 which would mark a 1.25% drop in economic growth in 2007.
Predicting that the US will go into “mid recession” this year, the IMF has said that downturn in economic growth will be spurred on by the US, which will see growth in the UK slow to 1.6% in 2008/09.
The IMF also stated that the sharp decline in growth in the UK economy would come as a result of a weakening housing market, contraction of the financial sector and impact on UK exports that will come as a result of weaker growth in the US and Europe as well.
In the March budget Alistair Darling predicted UK growth figures of 2% in 2008 rising to 2.5% in 2009, optimistic forecasts that are clearly not shared by the IMF.
These figures have also been released with the warning that global downturn may be even more severe; with a 25% chance the global economy will see growth levels fall to below 3%, marking a global recession.
“The financial market crisis that erupted in August 2007 has developed into the largest financial shock since the Great Depression,” the report says.
The IMF has predicted that the countries that will be hardest in any global downturn will be those will excessive house price inflation, marking Spain , Ireland and the UK as the most venerable.
In the US house prices have fallen by around 10%, and the IMF predicts that in the UK house prices are currently over valued by as much as 20%. Further falls in the US are predicted for this year of between 14% and 20%.
Criticising past FED actions when US interest rates were kept at 1% for several years, the IMF said that in the future central banks need to take more account of rising house prices when setting interest rates, “leaning against the wind” to prevent house prices moving out of “normal valuation ranges”.