IMF says slowing US growth is key to world economy

15-09-2006

The International Monetary Fund (IMF) has warned that slowing economic growth in the United States and global trade imbalances are threatening to undermine world economic growth.

Although the Washington-based organisation raised its forecast for world economic growth in its twice-yearly World Economic Outlook published yesterday, IMF managing director Rodrigo de Rato warned today that the global economy had become "less dynamic".

Speaking ahead of the IMF's annual meeting with the World Bank in Singapore this weekend, Mr de Rato warned that policymakers needed to be ready to adapt to a "more challenging" global economic environment.

The IMF predicts that world economic growth will reach 5.1 per cent in 2006 and 4.9 per cent in 2007, having raised its predictions for both years by 0.25 per cent from those issued by the organisation in April.

However, in the US growth is expected to slow from 3.4 per cent in 2006, to 2.9 per cent in 2007. IMF chief Mr de Rato claims that the way the world responds to America's slowing economy will be key to the future outlook for the wider global economy.

In particular, he warned that "the risk of a disorderly adjustment of global economic imbalances" had "not gone away".

The US has seen its trade deficit reach over $64 billion (£34 billion) while China's booming economy posted a record trade surplus of $18.8 billion (£10 billion) in August.

The US current account deficit now represents 6.5 per cent of the country's output, while China's surplus on its current account, the broadest measure of trade in goods and services, represents 7.2 per cent of GDP in the Asian economy.

Mr de Rato warned that the global imbalances were "complex problems that took many years to build up" and stressed that "it would be unrealistic to expect the problem to be resolved through a quick fix".

Analysts expect policymakers and finance ministers from the Group of Seven industrial countries meeting in Singapore tomorrow to put further pressure on Asian nations such as China to let their currencies rise in order to help reduce imbalances in the world economy.

Meanwhile, World Bank president Paul Wolfowitz has criticised Singapore's government as being "authoritarian" following its decision to ban 27 civil rights protestors from entering the country ahead of its meeting this weekend with the IMF.


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