IMF Bullish on World Prospects Despite Worry Over US Economy

13 April 2007

WASHINGTON, DC: The International Monetary Fund's biannual World Economic Outlook report, released Thursday, predicts turbocharged economic growth of 4.9% in 2007. Some economists, however, wonder whether the report's optimism plays down the clear and present likelihood of recession in the USA.

"By and large, things look very good," reassures the IMF's new chief economist, Simon Johnson.

But Morgan Stanley's chief economist Stephen Roach prefers realism in his prophesies. "It's a no-brainer to say the risks are on the downside. As we move through 2007, I wouldn't be surprised to see the [IMF's] number slip below 4%."

For now - and for the next several years - the USA will remain the chief driver of the global economy. After which, a broad consensus believes that mantle will be donned by communist China.

Meantime, however, seven Damoclean swords hang over the US economy. Morgan Stanley identifies these as . . .

  1. More oil-price hikes.

  2. A sudden fall in the dollar.

  3. More selloffs in stock and bond markets.

  4. Further setbacks to the once-burgeoning US housing market.

  5. Price increases that trigger a crackdown on inflation by central banks.

  6. An accelerated slowdown in business investment stateside.

  7. An outbreak of protectionist legislation and subsequent trade war.
The IMF is not unaware of these dangers: "A further cooling of the US economy that increasingly spreads to weakness in consumption and business investment in 2007 would be challenging, particularly since the euro-area economy is likely to be slowing."

But, it soothes: "[The US economy} is expected to gradually regain momentum."

  • Eurozone Growth Poised to Overtake US
    The IMF also predicts that Eurozone economic velocity will overtake growth in the United States for the first time in six years - thereby triggering an increase in interest rates by September.

    Powered by Germany, the largest economy in the bloc, the Eurozone expanded 2.6% in 2006, its best performance since 2000 and twice the pace of 2005.

    In the UK, which is a member of the European Union but not the Eurozone, the economy should "continue growing robustly in 2007," says the IMF.

    Data sourced from Wall Street Journal Online and Zee News (USA); additional content by WARC staff