World economy forecast to grow by 4.9 percent in 2007

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Global economic growth will moderate to 4.9 percent in 2007 and 2008, down from 5.4 percent in 2006, according to the IMF's World Economic Outlook (WEO). Despite recent volatility in financial markets and concerns about the housing market in the United States, the WEO predicts that strong global growth will continue, albeit less fast. Although risks to the outlook are judged to have declined since the last WEO, several factors create uncertainty.

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Global economy on track for continued strong growth, says IMF

Global economic growth will moderate to 4.9 percent in 2007 and 2008, from 5.4 percent in 2006- a strong performance despite the recent volatility in world financial markets and difficulties in some parts of the U.S. housing market, according to the IMF's World Economic Outlook (WEO). Although economists judged that the risks to the forecast are lower now than they were six months ago when the last WEO was issued, those risks remain tilted to the downside. The WEO said five are worth noting:

* There could be a sharper slowdown in the United States if the housing market continues to deteriorate.

* Oil prices could spike given limited spare production capacity and continuing geopolitical uncertainties.

* Inflationary pressures could be rekindled as output gaps continue to close, particularly if there were another spike in oil prices.

* Continued volatility in financial markets could lead investors to move further away from risky assets.

* Global imbalances could unwind in a disorderly fashion.

Although the probability of this occurring is low, the costs would be high.

Finally, from a longerterm perspective, several trends-including the aging of populations, rising political resistance to increasing globalization, and the environmental consequences of rapid growth-could undermine the buoyant productivity that has underpinned recent strong global growth.

Outlook for the large economies

Among the major advanced economies, the WEO predicts that the slowdown in year-on-year growth in 2007 will be most pronounced in the United States. The U.S. economy should gather some momentum again during the course of the year as the drag from the housing sector moderates in the second half of 2007, although a return to growth in line with potential is not expected until mid-2008...