The world economy – IMF releases World Economic Outlook, April 2008.

The release of the IMF’s World Economic Outlook – Housing and Business Cycle, April 2008 points to a continued deep correction in the US housing market and it forecasts that the US will in fact slip into a mild recession with two anticipated quarters of negative growth during 2008 before beginning a moderate recovery during 2009. The IMF posits that the resultant effects on the rest of the world will be significant enough for them to downgrade expectations for world growth from 4.9 in 2007, to 3.7.

In spite of the growth in commodity prices over the past few years, the IMF warns that this is an area of vulnerability because in times of global downturn over the last 30 years has shown that commodity prices have fallen by 30% at these times.

For the emerging economies the picture is different. Their challenge will come not from recession but rather from the rising inflation that they are facing that comes from upward pressure from food and energy prices. Even in advanced economies inflation has continued to rise in the face of slowing growth.

In fact the IMF asserts that the divergence between growth performance between the advanced and emerging economies is expected to continue with the growth in advanced economies “expected to fall well below potential.”

The financial market crisis that erupted in August 2007 has developed into the largest financial shock since the great depression inflicting heavy damage on markets and institutions at the core of the financial system says the IMF. It feels that the greatest risk to the outlook comes from the still unfolding events in financial markets and concerns that the losses can seriously impair financial capital and transform a credit squeeze into a full blown credit crunch.

For those interested in the full details the full text of the WEO can be downloaded as a Pdf from the link provided at the beginning of this post.

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~ by abstraktbiblos on Thursday, 10 April, 2008.

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