IMF predicts U.S. growth will slow to 1.9%

WASHINGTON – The International Monetary Fund today pared its forecast for global economic growth in 2008 to 4.8 percent, from 5.2 percent in July, citing a weaker outlook in the United States. The U.S. gross domestic product is expected to expand by 1.9 percent next year, rather than the 2.9 percent of the fund’s previous prediction.
“I would emphasize that there are serious risks ahead,” Simon Johnson, the IMF’s chief economist, told a news conference in Washington, D.C., according to Bloomberg News. “The smoke has not yet cleared” from the financial markets’ recent turmoil, he said.
In its semiannual World Economic Outlook, the fund assumed the Federal Reserve will pare interest rates by another half a percentage point this quarter. The policymaking Federal Open Market Committee last month cut its benchmark federal funds rate to 4.75 percent, in the first decrease since 2003. Meanwhile, the European Central Bank and Bank of England are expected to leave interest rates unchanged.
The IMF pared its growth estimate for the euro region to 2.1 percent, from the 2.5 percent of its previous 2008 prediction. Japan’s GDP is expected to increase 1.7 percent, rather than the 2.0 percent of the IMF’s previous prediction, while China is expected to expand by 10 percent, rather than the previously anticipated 10.5 percent.
“Risks to the outlook lie firmly on the downside, centering around concern that financial-market strains could continue and trigger a more pronounced global slowdown, the IMF said in a statement. “The immediate task for policy makers is to restore more normal financial-market conditions.”