IMF forecasts weak global recovery

WASHINGTON APRIL 9. The global economy will experience slower-than-expected growth this year because of the Iraq war and if the conflict does not end quickly the consequences could be much more serious, the International Monetary Fund said on Wednesday.

In its latest economic forecast, the IMF slashed its projection for global growth this year by one-half percentage point, blaming most of the downward revision on the jump in oil prices that occurred late last year and early in 2003 as markets grew worried that a U.S.-led invasion of Iraq would disrupt global oil supplies.

The IMF noted that since mid-March oil prices have retreated somewhat and global stock markets have rebounded, two favourable developments which it said should support its reduced forecast of 3.2 per cent global growth this year, down from a 3.7 per cent projection the IMF made in September.

But the IMF cautioned that this scaled-down forecast would be seriously jeopardised if the war in Iraq does not end quickly.

"A more prolonged and destructive conflict in Iraq could have a severe impact on global activity,'' the IMF said. "Such a development would clearly slow — and could choke off altogether — the already fragile recovery in industrial countries.''

The IMF chief economist, Kenneth Rogoff, said that even with a quick conclusion to the Iraq war, the global economy will be facing a number of other risks from the lingering effects of the bursting of the stock market bubble and the rising threat of a housing bubble in the U.S.

"For the past three months, concerns over conflict in the Middle East have weighed heavily on the global economy,'' Rogoff told reporters on Wednesday. ``But in our view, it is not just the war — a number of other risks weigh on the outlook.''

The IMF projection of 3.2 per cent growth this year would be only slightly better than the 3 per cent increase in global output in 2002.

For 2004, the IMF projected a significant rebound to 4.1 per cent growth as oil prices retreat further and global financial markets begin to recover from a prolonged slump in stock prices.

The IMF's latest "World Economic Outlook'' predicted that the U.S. economy would grow by just 2.2 per cent this year, 0.4 percentage point below its September estimate. The IMF forecast U.S. growth would rebound to 3.6 per cent in 2004.

The U.S. performance would still be far better than other major industrial countries. Growth in the 12 nations of Europe that use the euro as a common currency was projected at a weak 1.1 per cent this year and a slightly stronger 2.3 per cent in 2004.

Japan, which has struggled for more than a decade with a slumping economy and now deflation, was projected to see growth of just 0.8 per cent this year and a still-weak 1 percent in 2004.

Outside of the industrial countries, the IMF projected some improvement in economic growth in the developing world, although it said that the new deadly Asian virus called severe acute respiratory syndrome, by curtailing tourism and business travel, posed a threat to growth forecasts in that region.

The IMF's latest economic forecast was prepared for the spring meetings of the IMF and the World Bank that will begin Friday with preliminary talks among finance officials of the world's seven richest industrial countries: the U.S., Japan, Germany, France, Britain, Canada and Italy.

— AP