Report confirms slowdown in global economy, rebound could be evident in first half of 2002 IMF report confirms global slowdown

• Pages: 309-311

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As was widely anticipated, the World Economic Outlook, the IMF's biannual survey of global prospects and policies, is projecting a further weakening of the global economy this year.World growth is now expected to be 2.6 percent-sharply lower than the World Economic Outlook's projection in May of 3.2 percent and well below last year's 4.7 percent growth rate.However, these projections were completed just before the September 11 terrorist attacks on the United States.At a press briefing on September 26, Kenneth Rogoff, Economic Counsellor and Director of the IMF's Research Department, provided an updated assessment of the economic impact of the attacks, based on the latest information.He noted that even before the September 11 attacks, projections "were already showing marked slowdowns in activity in almost all regions of the world," reflecting a delayed recovery in the U.S. economy, a downturn in Europe, and a continuing slump in Japan.

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Although it is too early to assess the quantitative effects of the attack, the IMF study notes that recent events will clearly have an impact on activity in the short term, adding to the already significant downside risks both in the United States and elsewhere. The effect on projected global growth in 2001 is likely to be moderate, because developments in the third and fourth quarters of the year have a limited impact on the average growth rate for the year as a whole. In 2002, however, Rogoff said, global growth is likely to be "rather lower" than the 3.5 percent presently projected.

Despite these gloomy prospects, Rogoff expressed cautious optimism about the global outlook, noting that "there is still a reasonable prospect that a recovery will begin in the first half of next year."

Although the direct economic damage of the events of September 11 may turn out to be relatively moderate, Rogoff said, the potential indirect effects on consumer sentiment and spending, business confidence, and risk aversion are likely to be significantly more important.

However, while there are clearly substantial uncertainties about unfolding events, one should not overlook that the economic fundamentals in many countries have improved in recent years, and, from an economic perspective, this leaves the world somewhat less vulnerable than it might otherwise be. These improvements, he said, together with the aggressive response by central banks across the globe...