[Nasional-e] IMF pares forecast for global economy

Thu Sep 26 01:48:06 2002

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IMF pares forecast for global economy=20
 Alan Friedman=20
International Herald Tribune Thursday, September 26, 2002

Amid 'uncertainty,' it tells central banks to be open to rate cuts=20

WASHINGTON Faced with an increasingly uncertain global economy, the =
International Monetary Fund on Wednesday lowered its world growth =
forecast for next year and warned that "risks to the outlook are =
primarily on the downside."=20
.
With slower growth projections for the United States and euro-zone =
economies, and concern that Japan has not yet tackled its deflation =
risks, the IMF also urged the central banks of Europe, Japan and the =
United States to stand ready to cut interest rates in order to stimulate =
economic activity.=20
.
Kenneth Rogoff, the IMF's chief economist, said the revised forecast of =
3.7 percent global growth next year, down from 4 percent, came against a =
backdrop of a sell-off in global equity markets, a decline in investment =
activity, a deterioration in Latin America and the heightened risk of =
"conflagration" in the Middle East.=20
.
"Overall," Rogoff said, "we are cautiously optimistic about the global =
economy, with the emphasis on cautious."=20
.
He added that "we do see a great deal of uncertainty in the global =
outlook."=20
.
The IMF report said the U.S. economy would grow by 2.2 percent in 2002, =
down from a forecast last spring of 2.3 percent, and by 2.6 percent in =
2003, down from a previous forecast of 3.4 percent.=20
.
The 12-nation euro zone, meanwhile, had its 2002 growth forecast slashed =
to just 0.9 percent from 1.4 percent, and next year's outlook lowered to =
2.3 percent from 2.9 percent.=20
.
Germany's 2002 growth forecast was nearly halved, down to 0.5 percent =
from 0.9 percent. Japan's economy is expected to shrink by 0.5 percent =
this year, an improvement from the last forecast of a 1 percent =
contraction in 2002, while next year's growth would be 1.1 percent, up =
from 0.8 percent.=20
.
"The main concern in Europe," Rogoff said, "is that domestic demand is =
extremely weak, and insufficient to fuel the recovery."=20
.
Speaking bluntly, he said that "as long as Europe fails to deal with =
inflexible labor markets and a rapidly aging population, its growth rate =
will continue to lag."=20
.
Europe, he added, "needs to decide whether it is going to be a =
locomotive of the world economy or a caboose."=20
.
While the poor U.S. performance meant that the IMF agreed with the =
Federal Reserve's bias toward an easing of interest-rate policy, and =
while the IMF also urged Japan to relax its monetary stance, Rogoff =
saved his strongest language for the lackluster euro zone and for the =
European Central Bank.=20
.
He said the European Central Bank - which critics have condemned as =
lethargic about cutting interest rates to bolster growth - should have =
"a bias toward easing its policy, and that reflects our belief that the =
risks are tilted to the downside."=20
.
While the Federal Reserve has cut interest rates to 1.75 percent and is =
thought likely to cut further, the ECB has held rates steady at 3.25 =
percent this year, even though its biggest economy, Germany, is hardly =
growing at all.=20
.
Germany is now seen as the weakest European economy and is expected to =
face policy paralysis after the unconvincing re-election of Gerhard =
Schroeder's center-left government.=20
.
"Clearly, Germany's growth has been weak, and there is concern about its =
recovery," Rogoff said, adding that "many actions are needed, there are =
problems that need to be dealt with."=20
.
The IMF report stressed that "prospects for industrial production and =
domestic demand in Germany appear particularly uncertain, and further =
weakness there would have important implications for Europe as a whole." =

.
Concerning the controversial plan to postpone from 2004 until 2006 the =
deadline for EU states to balance their budgets, Rogoff appeared =
sanguine about that decision and about a flexible interpretation of the =
Stability and Growth Pact at times of economic weakness. He said the =
pact had played a valuable role, but that the EU should take account of =
the economic cycle when assessing its budget deficit limits, and not =
focus on "nominal" levels and figures.=20
.
In other comments, the IMF chief economist warned that the American =
dollar remained overvalued and was likely to decline in value as =
adjustments occurred in currency markets to reflect the huge U.S. =
current-account deficit.=20
.
Rogoff offered a stock response when questioned on the continuing =
defiance of Argentina, which this week openly clashed with the IMF.=20
.
On Tuesday, Economy Minister Roberto Lavagna said a new IMF bailout was =
the "only way" Argentina would avoid defaulting on billions of dollars =
of debt owed to the Fund, World Bank, Inter-American Development Bank =
and other multilateral lenders.=20
.
"Clearly Argentina is in the midst of an unprecedented and tragic =
crisis," Rogoff said, adding that Buenos Aires knew what to do in order =
to receive more IMF money.=20

 =20

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<DIV>
<DIV>IMF pares forecast for global economy&nbsp;</DIV>
<DIV>&nbsp;Alan Friedman </DIV>
<DIV>International Herald Tribune Thursday, September 26, =
2002 Amid=20
'uncertainty,' it tells central banks to be open to rate cuts =
 WASHINGTON=20
Faced with an increasingly uncertain global economy, the International =
Monetary=20
Fund on Wednesday lowered its world growth forecast for next year and =
warned=20
that "risks to the outlook are primarily on the downside." . With =
slower=20
growth projections for the United States and euro-zone economies, and =
concern=20
that Japan has not yet tackled its deflation risks, the IMF also urged =
the=20
central banks of Europe, Japan and the United States to stand ready to =
cut=20
interest rates in order to stimulate economic activity. . Kenneth =
Rogoff,=20
the IMF's chief economist, said the revised forecast of 3.7 percent =
global=20
growth next year, down from 4 percent, came against a backdrop of a =
sell-off in=20
global equity markets, a decline in investment activity, a deterioration =
in=20
Latin America and the heightened risk of "conflagration" in the Middle =
East.=20
 . "Overall," Rogoff said, "we are cautiously optimistic about the =
global=20
economy, with the emphasis on cautious." . He added that "we do =
see a=20
great deal of uncertainty in the global outlook." . The IMF =
report said=20
the U.S. economy would grow by 2.2 percent in 2002, down from a forecast =
last=20
spring of 2.3 percent, and by 2.6 percent in 2003, down from a previous =
forecast=20
of 3.4 percent. . The 12-nation euro zone, meanwhile, had its =
2002 growth=20
forecast slashed to just 0.9 percent from 1.4 percent, and next year's =
outlook=20
lowered to 2.3 percent from 2.9 percent. . Germany's 2002 growth =
forecast=20
was nearly halved, down to 0.5 percent from 0.9 percent. Japan's economy =
is=20
expected to shrink by 0.5 percent this year, an improvement from the =
last=20
forecast of a 1 percent contraction in 2002, while next year's growth =
would be=20
1.1 percent, up from 0.8 percent. . "The main concern in Europe," =
Rogoff=20
said, "is that domestic demand is extremely weak, and insufficient to =
fuel the=20
recovery." . Speaking bluntly, he said that "as long as Europe =
fails to=20
deal with inflexible labor markets and a rapidly aging population, its =
growth=20
rate will continue to lag." . Europe, he added, "needs to decide =
whether=20
it is going to be a locomotive of the world economy or a caboose."=20
 . While the poor U.S. performance meant that the IMF agreed with =
the=20
Federal Reserve's bias toward an easing of interest-rate policy, and =
while the=20
IMF also urged Japan to relax its monetary stance, Rogoff saved his =
strongest=20
language for the lackluster euro zone and for the European Central Bank. =

. He said the European Central Bank - which critics have =
condemned as=20
lethargic about cutting interest rates to bolster growth - should have =
"a bias=20
toward easing its policy, and that reflects our belief that the risks =
are tilted=20
to the downside." . While the Federal Reserve has cut interest =
rates to=20
1.75 percent and is thought likely to cut further, the ECB has held =
rates steady=20
at 3.25 percent this year, even though its biggest economy, Germany, is =
hardly=20
growing at all. . Germany is now seen as the weakest European =
economy and=20
is expected to face policy paralysis after the unconvincing re-election =
of=20
Gerhard Schroeder's center-left government. . "Clearly, Germany's =
growth=20
has been weak, and there is concern about its recovery," Rogoff said, =
adding=20
that "many actions are needed, there are problems that need to be dealt =
with."=20
 . The IMF report stressed that "prospects for industrial =
production and=20
domestic demand in Germany appear particularly uncertain, and further =
weakness=20
there would have important implications for Europe as a whole."=20
 . Concerning the controversial plan to postpone from 2004 until =
2006 the=20
deadline for EU states to balance their budgets, Rogoff appeared =
sanguine about=20
that decision and about a flexible interpretation of the Stability and =
Growth=20
Pact at times of economic weakness. He said the pact had played a =
valuable role,=20
but that the EU should take account of the economic cycle when assessing =
its=20
budget deficit limits, and not focus on "nominal" levels and figures.=20
 . In other comments, the IMF chief economist warned that the =
American=20
dollar remained overvalued and was likely to decline in value as =
adjustments=20
occurred in currency markets to reflect the huge U.S. current-account =
deficit.=20
 . Rogoff offered a stock response when questioned on the =
continuing=20
defiance of Argentina, which this week openly clashed with the IMF. =
 . On=20
Tuesday, Economy Minister Roberto Lavagna said a new IMF bailout was the =
"only=20
way" Argentina would avoid defaulting on billions of dollars of debt =
owed to the=20
Fund, World Bank, Inter-American Development Bank and other multilateral =

lenders. . "Clearly Argentina is in the midst of an unprecedented =
and=20
tragic crisis," Rogoff said, adding that Buenos Aires knew what to do in =
order=20
to receive more IMF money. &nbsp; =
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