Global economy faces slowdown

The Associated Press
Friday April 27, 2001

WASHINGTON — The global economy is facing its biggest threats since the worldwide financial crisis of 1997-98, the International Monetary Fund warned Thursday as it sharply cut its economic forecasts for this year. 

The IMF’s worries centered on problems facing the United States and Japan, which have the world’s biggest economies. IMF officials also said Europe is doing too little to fight the global slowdown. 

In its latest World Economic Outlook, the IMF slashed its forecast for global growth for this year by a full percentage point, to 3.2 percent compared with projections published last October. 

The 183-nation international lending agency, preparing for its spring meetings, also warned that a global recession cannot be ruled out, especially if a hoped-for rebound in the United States does not come. 

“The outlook remains subject to considerable uncertainty, and a deeper and more prolonged downturn is clearly possible,” the IMF said in its gloomiest economic assessment since the end of the late 1990s Asian currency crisis. 

The IMF’s projection of 3.2 percent global growth would be down from 4.8 percent growth in 2000 and would represent the slowest pace since the world economy expanded just 2.8 percent in 1998, at the height of the Asian currency crisis. 

In the 1997-98 crisis, a red-hot U.S. economy kept the world from toppling into recession. This time, however, the weakness is originating in the United States as it battles a dramatic slowdown caused by plunging stock prices and cutbacks in consumer demand. 

The IMF predicted the U.S. economy will expand by just 1.5 percent this year, its poorest showing since the last U.S. recession ended in 1991.  

In its October forecast, the IMF pegged U.S. economic growth this year at 3.2 percent, more than double the current estimate. 

The fund also significantly lowered its forecasts for other countries. It slashed growth expectations for Japan, the world’s second-largest economy, to just 0.6 percent this year, and reduced the growth forecast for 12 European nations to just 2.4 percent. 

Still, the IMF found reason to be optimistic that the United States will rebound this year. It pointed to consumer demand bolstered by aggressive interest rate cuts by the Federal Reserve and to expected congressional approval of most of President Bush’s $1.6 trillion, 10-year tax-cut program. 

Another hopeful sign, IMF officials said, were promises by new Japanese Prime Minister Junichiro Koizumi to attack the root problems of his nation’s 11-year economic slump, including bad loans held by the nation’s banks. 

IMF officials were less positive, however, about developments in Europe. Just Thursday, the European Central Bank, which controls monetary policy in the 12-nation euro currency area, refused again to reduce interest rates. 

“In a slowdown such as we are experiencing, ... it is desirable that the central bank of the second largest economic area in the world would be a part of the solution rather than a part of the problem,” IMF chief economist Michael Mussa complained to reporters Thursday. 

Interest rates as well as the overhaul of operating policies for the IMF and its sister lending agency, the World Bank, will be prime agenda items at the institutions’ spring meetings in Washington this weekend. 

Unlike last year, the discussions are not expected to draw thousands of protesters, whose activities clogged streets near the White House and resulted in more than 1,300 arrests last spring. 

U.S. Treasury Secretary Paul O’Neill and Federal Reserve Chairman Alan Greenspan will meet with their counterparts from the world’s seven richest industrial countries Saturday as a prelude to the IMF-World Bank meetings Sunday and Monday. 

The finance discussions will focus on current economic trouble spots. Principal ones include Argentina, mired in recession and battling turbulence in financial markets that has spilled over to its Latin American neighbors, and Turkey, seeking more IMF loans to stabilize its economy. 

The Turkey loan package probably will be approved by the IMF board soon, but under stricter guidelines set by the United States. The Bush administration is hoping to avoid huge IMF bailout packages approved during the Clinton years. 


On the Net: IMF site: http://www.imf.org 

World Bank site: http://www.worldbank.org 

Treasury Department: http://www.ustreas.gov/