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imf Monday, 5 October, 1998, 17:18 GMT 18:18 UK
IMF warns of world growth threat
IMF headquarters
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 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".

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If there is a real threat that existing investment capital in Latin America might be withdrawn by Western investors "it can and must be contained", the IMF warned.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

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.

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