IMF pessimistic on growth

Rising inflationary pressure in global economies coupled with a significant slowdown in world economic growth are two of the key concerns facing global markets today, according to the International Monetary Fund (IMF).

In its latest World Economic Outlook forecast, released last night, the IMF paints a gloomy picture for global growth, which it believes will continue to slow significantly in the second half of this year before staging a gradual recovery in 2009.

The IMF predicts global growth will drop from 5 per cent in 2007 to 4.1 per cent this year and 3.9 per cent in 2009.

The IMF also notes that rising energy and commodity prices have substantially boosted global inflationary pressure, which is mounting faster in emerging and developing countries.

Soaring energy and food prices are fuelling inflation faster in emerging markets, which has resulted in the IMF raising its inflation forecasts for these economies to 9.1 per cent this year.

“In the recent past, the global economy has managed to take large shocks in its stride, but we think its capacity to absorb them is being increasingly challenged,” IMF chief economist Simon Johnson said.

“How it will navigate through the latest turbulence in financial and commodity markets will crucially depend on how successfully policymakers respond to a fast-changing set of risks in many advanced and emerging economies.”

The IMF warned that governments needed to head off rising inflationary pressure while keeping sight of risks to growth.