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Sunday, 18 November, 2001, 17:09 GMT
US recession raises global fears
Horst Koehler, managing director, IMF
Koehler says the US economy will pick up in 2002
The US economy is suffering a "mild recession", according to the managing director of the International Monetary Fund (IMF), Horst Koehler.


The United States is now expected to experience a mild recession in the second half of 2001, followed by a recovery which strengthens through 2002

Horst Koehler
IMF
The Fund's forecast is the first official acknowledgement of what financial analysts and business executives have feared for months.

According to the IMF's predictions, the world's largest economy will shrink during the last six months of 2001.

"The United States is now expected to experience a mild recession in the second half of 2001, followed by a recovery which strengthens through 2002," Mr Koehler said at a Group of 20 nations meeting in Ottawa, Canada.

Technically, recession occurs if economic growth is negative during two consecutive quarters of a year.

Weakness ahead

Mr Koehler's prediction of an economic recovery next year means a US recession would be short-lived.


The fundamental strengths of the US economy; our strong macroeconomic foundations and our dynamic and flexible labour and capital markets, remain intact

Paul O'Neill
US treasury secretary
But that forecast comes with a health warning, since Mr Koehler also predicted that US economic growth will remain weak, if not negative, in 2002.

The terror attacks of 11 September led the IMF to revise its previous estimates about US growth to just 0.7% for 2002, down from its 2.2% October forecast.

If the IMF is right, the US will grow at its slowest rate since its last recession during the early 1990s.

Rejection

The US treasury secretary Paul O'Neill rejected the IMF's prediction as too negative, though he acknowledged that "it's a difficult quarter".

Horst Koehler , IMF managing director, and Gordon Brown, UK Chancellor of the Exchequer
Mr Brown, seen here with Mr Koehler, is keen to avoid the US economic downturn spreading to the UK
However, the "fundamental strengths of the US economy; our strong macroeconomic foundations and our dynamic and flexible labour and capital markets, remain intact," Mr O'Neill said.

But Mr O'Neill agreed with the IMF's call for the US economic stimulus package to be pushed through quickly to enable confidence to recover.

World recession looms

The IMF's gloomy predictions for the US economy, taken along with its fears that Japan's recession will get worse, have led the Fund to slash its growth forecast for the world economy to 2.4% both for this year and next year.

The Fund's increased pessimism is dramatic, not least since many economists would deem it a world recession if the global economy grew by less than 2.5%.

In October, the IMF issued predictions that suggested the world economy would narrowly avoid recession.

At the time, it s predictions, which were based on statistics from before 11 September, suggested that the global economy would expand by 2.6% in 2001 and 3.5% in 2002.

But despite the increasingly gloomy predictions, few analysts predict that a world recession, if it hits, would be as severe as the last down-turn in the US in the early 1990s.

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 ON THIS STORY
The BBC's Stephen Evans
"These conferences are not about decision-making, they are about diplomacy"

Terror's impact

Signs of a slowdown

Rate cuts

Analysis

Key players

FULL SPECIAL REPORT
See also:

18 Nov 01 | Business
IMF backs terror funds crackdown
18 Nov 01 | Business
World Bank faces 'great challenges'
17 Nov 01 | Business
World economy in the spotlight
18 Nov 01 | Business
US seeks fast action on terror funds
15 Nov 01 | Business
IMF sees global slowdown
26 Sep 01 | Business
US economy in freefall
26 Sep 01 | Business
IMF warns on global economy
26 Sep 01 | Business
Europe faces economic slowdown
25 Sep 01 | Business
IMF shrugs off recession fears
25 Sep 01 | Business
Why consumer confidence matters
17 Sep 01 | Business
World Bank and IMF cancel talks
29 Aug 01 | Business
IMF to cut global forecasts
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