January 16, 2008

IMF sees US avoiding recession, Fed moves "supportive"

WASHINGTON (AFP) - The International Monetary Fund sees the US economy avoiding recession, despite financial sector turmoil and a housing sector slump, a spokesman said Thursday.

"Although the recession risks have increased, at this point we do not forecast a recession," IMF spokesman Masood Ahmed said at a news conference.

Recent Federal Reserve actions aimed at buffering the fallout from the housing crisis and tighter credit on the broader economy have been "supportive and timely" to date, he said.

 

The Fed has lowered its base federal funds rate by a full percentage point in three consecutive moves since September, to 4.25 percent.

For the overall global economy, Ahmed said the downside risks cited by the IMF's latest twice-yearly World Economic Outlook (WEO) report, published in October, have materialized and "growth prospects are being dampened."

The IMF said in late November that it would likely lower its 2008 global growth forecast due to surging oil prices and financial turbulence.

An updated WEO report will be issued on January 25 that will include the 2008 and 2009 forecasts, the spokesman said.

In the October report, the IMF predicted the world economy would grow by 4.8 percent in 2008, slowing from a robust 5.2 pace in 2007.

The IMF this week unveiled about a half-percentage-point downward revision to its global growth estimates each year for the 2002-2007 period, due to the adoption of a new international system of calculating purchasing power parity (PPP) exchange.

Based on the new statistical calculations of PPPs, 2007 global growth was 4.7 percent, the IMF said Wednesday in its online IMF Survey Magazine.

PPPs are the rates of currency conversion that equalize the purchasing power of different currencies by eliminating the differences in price levels between countries. They are used as a first step in making comparisons of the relative sizes of countries.

A World Bank-led project, the International Comparison Program, released in December preliminary PPP estimates for the 2005 benchmark year.

The IMF said downward revisions for PPP-based GDP of two of the world's fastest-growing economies, China and India, were mainly responsible for the overall reduction of global growth estimates.

For 2007, China's share of global output is now estimated at 10.9 percent, down from 15.8 percent, and India's share has declined to 4.6 percent from 6.4 percent.

Meanwhile, the US share has been revised up to 21.4 percent from 19.3 percent.

The new PPP calculations will be used to prepare the January 25 WEO update, which coincides with the World Economic Forum in Davos, Switzerland.

IMF managing director Dominique Strauss-Kahn will participate in a panel discussion at the annual meeting of leading politicians and business leaders at the alpine ski resort, the spokesman said.

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