The International Monetary Fund has slashed its forecasts for global growth next year, blaming continued weakness in the US economy.

In September, the IMF predicted that global growth, although the slowest for a decade, would not fall below 2.5% (considered the upper threshold of recession), forecasting 2.6% in 2001 and 3.5% in 2002 [WAMN: 27-Sep-01]. Those forecasts were made before the attacks of September 11.

Global growth is now projected at 2.4% both this year and next, with recovery expected to begin in the middle of 2002. However, IMF managing director Horst Köhler insisted the dreaded ‘R’ word should not be used: “We do not think that this is a recession,” he said. “The outcome of the slowdown will be less severe than the recessions in 1991 and in the early 80s.”

The forecast for the US has been slashed to 1.1% this year and 0.7% next (from 1.3% and 2.2% respectively). However, some experts thought this too harsh, with a consensus among economists for 1.1% next year. Treasury secretary Paul O’Neill revealed he had bet Köhler that the IMF forecast was wrong, adding: “I think when the score keeping is done, Horst Köhler will owe dinner, and a great big one.”

Japan, the world’s second biggest economy, is now in line for a 0.9% contraction in 2001 (compared with earlier predictions of 0.5% fall) and a decline of 1.3% next year (down from a 0.2% increase). Projections for the European Union were cut to 1.7% this year and 1.4% in 2002, down from 1.8% and 2.2%.

However, Köhler admitted that the forecasts were essentially guesstimates. “We have to recognise that we face an extraordinary degree of uncertainty in the aftermath of the 11 September attacks,” he said. “There is no real precedent for this situation, which makes forecasting based on previous experience look something like trying to read the tea leaves.”

News sources: Wall Street Journal; BBC Online Business News (UK)