IMF gloomy on growth, Sees Rising inflation Threat

• Pages: 117-118

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The IMF expects global growth to slow significantly in the second half of the year, before recovering gradually in 2009.

Updated forecasts in the IMF's World Economic Outlook (WEO), released July 17, also raise inflation projections, particularly for emerging markets and developing countries.

The WEO expects a moderation in global growth from 5 percent in 2007 to 4.1 percent in 2008 and 3.9 percent in 2009. Following a better-than-expected performance in the early part of 2008, WEO projections for the United States, the euro area, and Japan show a slowdown in activity in the second half of 2008.

Expansions in emerging and developing economies are also expected to lose further steam, with growth in these countries projected to ease to around 7 percent in 2008-09 from 8 percent in 2007. China's growth rate is expected to ease to around 10 percent in 2008-09 from near 12 percent in 2007.

"The global economy is in a tough spot, caught between sharply slowing demand in many advanced economies and rising infla-Page 118 tion everywhere, notably in emerging and developing economies," the WEO says.

Rising inflationary pressures

At the same time as the growth slowdown, the WEO notes, rising energy and commodity prices have boosted inflationary pressure, particularly in emerging and developing economies. In advanced economies, inflation pressures are likely to be countered by slowing demand and, with commodity prices projected to stabilize, the expected increase in inflation for 2008 is forecast to be reversed in 2009.

In emerging and developing countries, inflationary pressures are mounting faster, fueled by soaring commodity prices, above-trend growth, and accommodative macroeconomic policies. Hence, inflation forecasts for these economies have been raised by more than 1.5 percentage points in both 2008 and 2009, to 9.1 percent and 7.4 percent, respectively, and the moderation in inflation in 2009 will depend on more assertive tightening of monetary conditions.

At the July 9 summit of leaders of the Group of Eight industrial countries in Hokkaido, Japan, IMF Managing Director Dominique Strauss-Kahn said inflation should be the top concern of policymakers confronted by higher food and fuel prices. Strauss-Kahn called on leaders to act to prevent higher food and fuel prices from turning into generalized inflation.

Slowing demand

"In the recent past...