For the second time in four months, the International Monetary Fund has cut its 2008 global growth forecast, citing the worst financial crisis in the United States since the Great Depression of the 1930s.
IMF now expects the global economy to grow 3.7% in 2008, down from its earlier forecast of 4.1% growth, Bloomberg News reported, citing an IMF document it obtained at the meeting of Southeast Asian deputy finance ministers and central bankers in Vietnam. The IMF also said there's a 25% chance global growth will drop below 3% in 2008 and 2009.
In January 2008, the IMF lowered its forecast for global economic growth this year to 4.1%, the lowest since 2003, from 4.4% predicted in October 2007. At that time the IMF said last year's increase in credit costs resulting from defaults on mortgages aimed at borrowers with poor credit histories was hurting the rest of the economy.
In its current assessment, the IMF said the credit crunch that started in the subprime mortgage market has spread quickly, and in unexpected ways, and that "the global expansion is losing momentum" Bloomberg reported, citing the IMF document.
Economic Analysis: A decidedly negative forecast for the global economy. Prior to this year, arguments had surfaced in economists' circles regarding 'decoupling' -- the thesis that the global economy was no longer as closely linked to the U.S. economy, and, by extension, would survive any U.S. slowdown relatively unscathed. With this document the IMF is arguing that it's not in the decoupling camp, and, more importantly, it sees serious global economic implications from the U.S. slowdown/recession.
Further, the IMF's forecast of a 25% chance that global growth could drop below 3% in 2008 and 2009 amounts to a warning that emerging market growth could fall to sub-par levels. Unlike developed nation economies, most emerging markets should grow at rates above 4%, in order speed basic-needs development and increase real incomes. A sub 3.5% global growth rate would suggest an inadequate growth rate in much of the developing world -- an unacceptable condition for nations, investors, business executives and, citizens alike.
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