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Wednesday, 26 September, 2001, 14:08 GMT 15:08 UK
IMF warns on global economy
The International Monetary Fund has forecast a sharper slowdown in the world economy, following the terrorist attacks in the United States.

The economic recovery, predicted for the last three months of this year, has now been pushed back well into 2002, it says.

And OECD Secretary-General Donald Johnston said the impact of the attacks could seriously affect economic growth in the coming quarters.

"While the target was the United States, these impacts are being felt everywhere," he told the European Parliament.


It is clear that the US economy will not emerge from its growth slowdown as soon as we had hoped

IMF chief economist Ken Rogoff
The IMF, which oversees the world economy, was already projecting a slowdown this year, from a worldwide growth rate of 4.7% in 2000 to 2.6% in 2001, before recovering to 3.5% in 2002.

Kenneth Rogoff, the IMF's chief economist, said that the "downside risks have increased" and that world growth would be unlikely to reach earlier projections.

"It is clear that the US economy will not emerge from its growth slowdown as soon as we had hoped," adding that a US recession was now a "done deal".

However, in a highly unusual move, Mr Rogoff withdrew this remark at the very end of his news conference, saying it reflected his "much greater experience at lecturing in my Harvard classroom than giving conferences of this sort".

IMF world economic forecast
World 2000: 4.7%
2001: 2.6%
USA 2000: 4.1%
2001: 1.3%
EU 2000: 3.4%
2001: 1.8%
Japan 2000: 1.5%
2001: -0.5%
Asia 2000: 6.8%
2001: 5.8%
Africa 2000: 2.8%
2001: 3.8%
Russia 2000: 8.3%
2001: 4.0%
Source: IMF; annual % change in GDP
In its twice-yearly World Economic Outlook, the IMF said that there had been a weakening in the world's key economies, including "a substantial decline in growth in the United States" and "the serious deterioration in the economic prospects for Japan".

It warns that world trade is also sharply declining, and there are problems in the financial markets in emerging countries, with crisis packages in place in countries like Argentina and Turkey.

And it says that there are "unusually large uncertainties and risks" both for advanced and emerging market countries, with "no major region providing support to global activity."

The IMF said that further cuts in interest rates, especially in Japan, may be necessary to stabilise the world economy.

World-wide impact

The IMF points out that the increased linkages between countries mean that no region in the world can escape the effects of the economic slowdown.

In particular, the globalisation of IT production has meant that East Asia has been hard-hit by the decline in demand for computers and related products, and that Latin American economies in particular are suffering from the problems in world capital markets.

But it notes that, in relative terms, the slowdown in growth may be less severe in Africa and Russia and Eastern Europe - where there are concerns about fluctuating exchange rates that might choke off growth.

However, the report notes that private capital flows to developing countries are still expected to be negative three years after the Asian crisis, depriving poor countries of much-needed investment.

And it admits that, "in the light of the weak positive relationship... between capital account liberalisation and economic growth," countries need to proceed cautiously, ensuring that they have effective regulation and a strong economy before fully opening their financial markets.

Indirect effects

The IMF notes that the immediate effects of the terrorist attacks are small compared to the size of the world economy, comparable, for example, to the Kobe earthquake in Japan in 1995.

But its experts warn that the indirect effects might be more substantial, including the possibility of "sustained deterioration in consumer, corporate, and financial confidence, a flight to quality in financial markets that could exacerbate existing weaknesses, and higher oil prices."

However, it says it is too early to quantify the long-term impact of the terrorist attacks, because of the uncertainty of the military situation.

And it suggests that further measure to restore confidence may be necessary, especially since financial markets are remaining volatile.

 WATCH/LISTEN
 ON THIS STORY
The BBC's Andrew Walker
"The IMF says the attacks are clearly going to have an adverse impact on economic activity in the short term"

See also:

25 Sep 01 | Business
25 Sep 01 | Business
19 Sep 01 | Business
29 Aug 01 | Business
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