IMF Cuts US and Global Growth Forecasts

11 April 2008

WASHINGTON, DC: The US economy is likely to experience a “mild recession” this year, with global economic growth also expected to slow to 3.7% in 2008 and 3.8% in 2009, according to data from the International Monetary Fund's latest World Economic Outlook.

The US growth forecast has been cut to 0.5% in 2008 (down one percentage point from January) and 0.6% in 2009 in the wake of the subprime mortgage crisis, which is described by the IMF as the largest shock since the Great Depression of 1929.

States chief economist Simon Johnson: “Economic growth has nearly stalled”, resulting in the global growth rate for 2008 being cut from 4.2% to 3.7%. The IMF cites a 25% probability that growth could slip below 3% this year and next, the “equivalent to a global recession”.

Emerging markets are also expected to slow slightly – largely as a result of inflation – with China's economic expansion for 2008 cut by 0.7% to a total of 9.3% (rising to 9.5% in 2009), and India's annual growth amended to 7.9% and 8%+ respectively for this year and next.

Growth in the Eurozone is forecast at 1.4% in 2008 and 1.2% the following year, with a degree of divergence expected among the zone's fifteen-member economies. This implies that the IMF advocates an “easing of the policy stance” by the European Central Bank concerning interest rates.

Spain is predicted to enjoy the highest level of growth (up 1.8% in 2008), with Italy slowing to just 0.3%, and France and Germany improving by 1.4% each for the year (though the OECD has forecast a more generous 1.8% upswing in the latter).

Japan's economic growth is expected to be 1.4% this year (down from 2.1%), and 1.5% in 2009; with the Bank of Japan advised to keep interest rates on hold, or lower them slightly “if there were a substantial deterioration in growth prospects”. 

Data sourced from Wall Street Journal Online; additional content by WARC staff