Global economy beset by credit crisis, oil prices

NEW YORK – The world economy, buffeted by the credit crisis gripping financial markets, is expected to keep expanding in 2008 – albeit at a slower pace – with little fear of recession.

But unlike past economic upswings driven by the US, Japan and Western Europe, the main engines of growth this time are predicted to be China, India and other emerging economies. In its latest World Economic Outlook, the International Monetary Fund projected that global economy would grow by 5,2 per cent this year and moderate to 4,8 per cent in 2008, compared with last year’s 5,4 per cent growth.The 2008 forecast was downgraded by nearly one-half percentage point from the summer outlook, reflecting the turbulent conditions in financial markets.”Risks to the outlook, however, are firmly on the downside, centred around the concern that financial market strains could deepen and trigger a more pronounced global slowdown,” the IMF warned.Inflation pressures, volatile oil markets and the strong flows of foreign currency into emerging markets are also threats, it said.The IMF said the ongoing turbulence in financial markets and a new rise in oil prices have dampened the outlook since its October update.In particular, the US growth outlook has become riskier, IMF First Deputy Managing Director John Lipsky said in an interview posted on the Fund’s Web site Dec 11.The global oil markets remain very tight, and with spare capacity still limited, supply shocks or heightened geopolitical concerns could lead to oil price spikes that could trigger higher inflation, economists said.There is room for some cheering, though.”The good news is that emerging and developing countries weathered the recent financial storm and are providing the basis for strong global growth in 2008,” said IMF Chief Economist Simon Johnson.”For the first time, China and India are making the largest country-level contributions to world growth,” he said.Emerging Asia is forecast to expand 9,2 per cent this year and 8,3 per cent in 2008; Africa is to grow 5,7 per cent and 6,5 per cent, respectively; and the Middle East, supported by high oil prices and robust domestic demand, is projected to expand 5,9 per cent in both 2007 and 2008.The IMF raised its growth forecast for China’s sizzling economy this year to 11,5 per cent from 11,2 per cent, and said Beijing’s efforts to cool the boom would be more effective if currency controls were eased.However, it said that easing may not materialise unless the authorities act more decisively and let the yuan’s exchange rate rise faster.Economic growth in the 30 industrialised economies of the Organisation for Economic Cooperation and Development – which include the US, Britain, Germany and France – will slow to 2,3 per cent in 2008 from 2,7 per cent in 2007, the Paris-based think tank predicted in early December.”Although near-term growth has been revised down virtually everywhere in the OECD area, the baseline scenario …is actually not that bad in view of the recent shocks,” said Joergen Elmeskov, the acting economic chief of the think tank.Corporate profits, high employment that boosts income and consumption, and increased global trade have supported the world economy, while it has been hit by financial turmoil, cooling housing markets and rising energy and commodity prices, the OECD said.The gradual slowing currently envisioned comes as the world economy’s biggest player – the United States – is facing a considerable loss of speed.The IMF lowered its forecast for US growth, predicting the economy would expand by just 1,9 per cent this year and next, reflecting the impact of the worst housing slump in more than two decades and the effects of the credit crisis.If the IMF’s forecast for 2007 proves correct, it would be the weakest growth the US has logged in six years.The housing slump would cost the US economy a full percentage point of growth this year or one-third of the typical three per cent annual rate of increase, economists said.Although risks of a recession have risen in the United States, the IMF said the more likely outcome would seem to be a more prolonged period of sub par growth.A November survey by 50 professional forecasters of the Washington-based National Association for Business Economics (NABE) trimmed the estimates for all the major US economic sectors next year, with the exception of net exports and government spending, without predicting a recession.Nampa-APIn its latest World Economic Outlook, the International Monetary Fund projected that global economy would grow by 5,2 per cent this year and moderate to 4,8 per cent in 2008, compared with last year’s 5,4 per cent growth.The 2008 forecast was downgraded by nearly one-half percentage point from the summer outlook, reflecting the turbulent conditions in financial markets.”Risks to the outlook, however, are firmly on the downside, centred around the concern that financial market strains could deepen and trigger a more pronounced global slowdown,” the IMF warned.Inflation pressures, volatile oil markets and the strong flows of foreign currency into emerging markets are also threats, it said.The IMF said the ongoing turbulence in financial markets and a new rise in oil prices have dampened the outlook since its October update.In particular, the US growth outlook has become riskier, IMF First Deputy Managing Director John Lipsky said in an interview posted on the Fund’s Web site Dec 11.The global oil markets remain very tight, and with spare capacity still limited, supply shocks or heightened geopolitical concerns could lead to oil price spikes that could trigger higher inflation, economists said.There is room for some cheering, though.”The good news is that emerging and developing countries weathered the recent financial storm and are providing the basis for strong global growth in 2008,” said IMF Chief Economist Simon Johnson.”For the first time, China and India are making the largest country-level contributions to world growth,” he said.Emerging Asia is forecast to expand 9,2 per cent this year and 8,3 per cent in 2008; Africa is to grow 5,7 per cent and 6,5 per cent, respectively; and the Middle East, supported by high oil prices and robust domestic demand, is projected to expand 5,9 per cent in both 2007 and 2008.The IMF raised its growth forecast for China’s sizzling economy this year to 11,5 per cent from 11,2 per cent, and said Beijing’s efforts to cool the boom would be more effective if currency controls were eased.However, it said that easing may not materialise unless the authorities act more decisively and let the yuan’s exchange rate rise faster.Economic growth in the 30 industrialised economies of the Organisation for Economic Cooperation and Development – which include the US, Britain, Germany and France – will slow to 2,3 per cent in 2008 from 2,7 per cent in 2007, the Paris-based think tank predicted in early December.”Although near-term growth has been revised down virtually everywhere in the OECD area, the baseline scenario …is actually not that bad in view of the recent shocks,” said Joergen Elmeskov, the acting economic chief of the think tank.Corporate profits, high employment that boosts income and consumption, and increased global trade have supported the world economy, while it has been hit by financial turmoil, cooling housing markets and rising energy and commodity prices, the OECD said.The gradual slowing currently envisioned comes as the world economy’s biggest player – the United States – is facing a considerable loss of speed.The IMF lowered its forecast for US growth, predicting the economy would expand by just 1,9 per cent this year and next, reflecting the impact of the worst housing slump in more than two decades and the effects of the credit crisis.If the IMF’s forecast for 2007 proves correct, it would be the weakest growth the US has logged in six years.The housing slump would cost the US economy a full percentage point of growth this year or one-third of the typical three per cent annual rate of increase, economists said.Although risks of a recession have risen in the United States, the IMF said the more l
ikely outcome would seem to be a more prolonged period of sub par growth.A November survey by 50 professional forecasters of the Washington-based National Association for Business Economics (NABE) trimmed the estimates for all the major US economic sectors next year, with the exception of net exports and government spending, without predicting a recession.Nampa-AP