The International Monetary Fund says the world economy is losing speed in the face of a financial crisis in the United States. VOA's Barry Wood reports that in its semi-annual forecast, the IMF says 2008 world growth is decelerating by over a full percentage point from last year to 3.7 percent.
The IMF says because of the credit squeeze and housing difficulties the U.S. economy will enter a mild recession this year.
"We do think this is a mild contraction. And we are also saying we think it will be a mild recovery," said Simon Johnson, the Fund's chief economist.
The U.S. economy is expected to register growth of five-tenths of a percent this year and about the same in 2009. The last U.S. recession, in 2001, was short and mild.
The IMF says because the U.S. economy is so large and America is the world's biggest importer, its slowdown will have global effects. Johnson says even China, which has been growing at more than 11 percent clip, will see its growth slow, probably to nine and a half percent this year.
"The right policy response [for China] will be to allow some exchange rate appreciation," said Johnson. "We think there is considerable scope for, in that way, containing the inflationary impact of higher commodity prices."
The IMF foresees considerable downside risks in its global forecast. There is, it says, a one in four chance of a global recession, which it defines as overall growth of under three percent.
While conceding that higher oil and other commodity prices have boosted inflationary pressure, Johnson says the United States is correct to stimulate growth through lower interest rates and putting more money into the hands of consumers.
"Because we think the U.S. economy is slowing considerably, we think that will take the edge off the inflationary pressure in the United States. And we think the Fed's [central bank's] position on this is the right one and one we fully support," said Johnson.
The IMF predicts home prices in the United States will decline by a further 10 percent this year.
The semi-annual economic forecast forms a basis for the meetings of world finance ministers and central bankers due to take place in Washington over the next few days.
