IMF’s recessionary fears

There is a one in four chance that the global economy will slip into recession in 2008 and 2009, according to warnings from the International Monetary Fund (IMF) overnight.

In releasing the findings of its latest World Economic Outlook report, the IMF forecasted global growth to slow to 3.7 per cent this year, but with a caveat that there was a 25 per cent chance of this figure dropping to 3 per cent or less.

The IMF attributed this slowdown to the sharp deceleration in the United States amid a housing correction and a financial crisis that has quickly spread from the US sub-prime sector to core parts of the financial system.

While the current turmoil on financial markets was seen as the biggest risk to the global economy, IMF chief economist Simon Johnson added that “principal downside risk comes from the possibility that financial strains could deepen”.

Johnson also pointed to continuing inflation concerns, particularly in the wake of increasing commodity prices as well as large current account surpluses, and the “uneven pattern of exchange rate movement around the world” as other downside risks to the global economy.

The IMF issued a bleak forecast for the US economy, saying that the deteriorating financial market conditions and the continuing correction in the US housing market would tip the United States into a “mild recession” this year, from which it will recover only modestly in 2009.