Europe South Asia Asia Pacific Americas Middle East Africa BBC Homepage World Service Education

Front Page



UK Politics







Talking Point
On Air
Low Graphics

Wednesday, September 30, 1998 Published at 15:59 GMT 16:59 UK

Business: The Economy

IMF warns of world growth threat

There are worried economists at the IMF's headquarters

The world economy is in a fragile state with economic growth hanging in the balance, according to the latest forecasts from the International Monetary Fund (IMF).

In its twice-yearly world economic outlook - released on the eve of its annual meeting in Washington - the IMF reduced its forecast for world economic growth in 1998 to 2%, down from a forecast of 3.1% made just six months ago.

The IMF described the world economic situation as "unusually fragile".

Risks escalating

The report said: "Chances of significant improvement in 1999 have also diminished and the risks of a deeper, wider and more prolonged downturn have escalated."

However, it forecast a moderate recovery in global growth to 2.5% next year but added that "a significantly worse outcome is clearly possible".

[ image: Russian economic misery could spread]
Russian economic misery could spread
The IMF cited the greater than expected slowdown in Asia, the Russian financial and economic crisis and signs of a spillover of turmoil to Latin America as the cause of its bleak outlook for world economy.

It also warned that further falls in Western share markets could spark a new panic in Asia as part of a vicious cycle of financial negative shocks.

The report said that if capital flows from the West to emerging markets, especially Latin America, are cut further, the world economy will have to absorb yet another hit.

If there is a real threat that existing investment capital in Latin America might be withdrawn by Western investors "it can and must be contained", the IMF warned.

The IMF report forecasts Japan's recession-hit economy to shrink by 2.5% this year, singling out the country's banking problems as a critical issue for the global economy, which needs decisive action.

Under scrutiny

The IMF and the World Bank have begun their annual meetings under the scrutiny of government and central bank officials from around the world amid what could turn out to be the world's worst financial crisis since World War II.

[ image: The IMF's chief Michel Camdessus]
The IMF's chief Michel Camdessus
The IMF, under its director Michel Camdessus, is on the front line of Western efforts to contain the contagion which has spread through the emerging markets of Asia and Russia, threatening Latin America and the West itself.

Fears of economic recession spilling over from affected emerging markets to the Western industrial economies prompted the US central bank, the Federal Reserve, to cut official interest rates by 0.25 percentage points this week.

Federal Reserve chairman Alan Greenspan has identified the contagion as the major threat to the US economy in coming months and he is prepared to see rates cut further to ward off a downturn in the US.

Japan is also entrenched in recession and, as one of the engines of world economic growth, is already providing a drag on world growth.

The release of forecasts of slower growth by the IMF may well fuel the growing criticism of the global finance authority that it has largely failed its brief. It has not been able to prevent the spread of the financial crises and the ensuing economic downturns affecting much of the world.

This has prompted calls by US politicians, UK prime minister Tony Blair and the French president Jacques Chirac for an overhaul of the IMF.

Advanced options | Search tips

Back to top | BBC News Home | BBC Homepage | ©

The Economy Contents

Relevant Stories

29 Sep 98 | imf
Knives out for IMF

17 May 98 | Economy Reports
The IMF and World Bank

02 Jul 98 | The Economy
Meltdown in Asia - part 1: the origins of the crisis

Internet Links

International Monetary Fund

The BBC is not responsible for the content of external internet sites.

In this section

Inquiry into energy provider loyalty

Brown considers IMF job

Chinese imports boost US trade gap

No longer Liffe as we know it

The growing threat of internet fraud

House passes US budget

Online share dealing triples

Rate fears as sales soar

Brown's bulging war-chest

Oil reaches nine-year high

UK unemployment falls again

Trade talks deadlocked

US inflation still subdued

Insolvent firms to get breathing space

Bank considered bigger rate rise

UK pay rising 'too fast'

Utilities face tough regulation

CBI's new chief named

US stocks hit highs after rate rise

US Fed raises rates

UK inflation creeps up

Row over the national shopping basket

Military airspace to be cut

TUC warns against following US

World growth accelerates

Union merger put in doubt

Japan's tentative economic recovery

EU fraud costs millions

CBI choice 'could wreck industrial relations'

WTO hails China deal

US business eyes Chinese market

Red tape task force

Websites and widgets

Guru predicts web surge

Malaysia's economy: The Sinatra Principle

Shell secures Iranian oil deal

Irish boom draws the Welsh

China deal to boost economy

US dream scenario continues

Japan's billion dollar spending spree