Lipsky Sees Slower growth

• Author: Laura Wallace
• Position: IMF External Relations Department
• Pages: 1-7

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John Lipsky, the IMF's First Deputy Managing Director, sees world growth slowing because of a combination of higher world oil prices, recent financial market turbulence, and a U.S. slowdown. He says in an interview that it is more urgent than ever that key economies take action to reduce global imbalances.

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Rising oil prices, financial market turmoil, and a sliding dollar have grabbed the headlines in recent months. Underlying these developments, however, is the emergence of record-high external payments imbalances and the associated capital flows.

The persistence of these imbalances undermines confidence that the global growth expansion can be sustained, says IMF First Deputy Managing Director John Lipsky. Speaking with the IMF Survey Magazine, he argues that it is more urgent than ever that the major players-China, the euro area, Japan, Saudi Arabia, and the United States-follow through on promised policy plans that were announced last April as part of the IMF's Multilateral Consultation on Global Imbalances.

IMF Survey Magazine: Financial conditions remain unsettled and oil prices have continued to rise. How do you assess the global economic outlook and the risks to it?

Lipsky: Ongoing turbulence in financial markets and a new rise in oil prices have dampened the global outlook since the October update of our World Economic Outlook- which forecast growth of 4.8 percent in 2008, down from 5.2 percent in 2007. In particular, the U.S. growth outlook, which we had perceived already as likely to be sub par in 2008, has become subject to somewhat greater risks. The heightened risks reflect both the depth of the housing sector's difficulties and the financial market strains that now appear to be more widespread and of longer potential duration than had been anticipated previously.

In Europe and Japan, growth appears to be decelerating after solid advances in the third quarter, and their outlooks would be affected if risks to U.S. growth were to materialize. Emerging markets have been the engine of global growth in 2007, and so far, they remain largely unaffected by the financial market turmoil. But the combination of higher energy prices and weaker growth prospects in advanced economies could dampen the outlook also for emerging markets. Nonetheless, despite these risks, the most likely outcome is a continued global expansion.

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