Washington: The International Monetary Fund (IMF) cut its forecast for global growth next year and warned that even its new prediction may be too optimistic given threats posed by the sell-off in credit markets.
IMF lowered its projection for the global expansion next year to 4.8% in its semi-annual World Economic Outlook, from an estimate of 5.2% in July. A weaker outlook for the US was mostly to blame, as the fund reduced its forecast to 1.9%, from 2.8%.
Indian gross domestic product will increase by 8.4% next year, unchanged from the July projection, after an 8.9% expansion in 2006-07, the fund said.
“I would emphasize that there are serious risks ahead,” Simon Johnson, the IMF’s chief economist, said at a press conference in Washington. “The smoke has not yet cleared” from the financial-market turmoil, he said.
“Robust” growth in China, India and Russia, which accounted for half the global expansion over the past year, will compensate for the American slowdown, the fund said. In calculating their estimates, IMF economists assumed that the Federal Reserve will cut interest rates by another half percentage point by the end of this year.
“Risks to the outlook lie firmly on the downside, centering around concern that financial-market strains could continue and trigger a more pronounced global slowdown,” the fund said. “The immediate task for policy makers is to restore more normal financial-market conditions.”