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IMF cuts growth forecasts, warns of downside risks

World growth seen at 4.8% next year, driven mainly by emerging economies

ROME – THE International Monetary Fund (IMF) has slashed its forecast for growth in the United States next year and made more modest downward revisions to its outlook for the euro zone and Japan, Italian news agency Ansa reported yesterday.

Citing a draft version of the IMF’s World Economic Outlook to be issued next week, Ansa said the IMF now sees US growth next year at 1.9 per cent, compared with a 2.8 per cent projection made by the fund on July 25.

The IMF has cut its forecast for world growth next year to 4.8 per cent from 5.2 per cent, with emerging economies, rather than developed countries, being the main driver, Ansa said.

The fund only marginally trimmed its forecast for next year’s growth in China to 10 per cent from 10.5 per cent, Ansa reported, and left its forecast for the Indian economy unchanged at 8.4 per cent.

The IMF’s forecast for euro zone growth was cut to 2.1 per cent from 2.5 per cent, while the outlook for Japan was lowered to 1.7 per cent from 2 per cent, Ansa reported.

‘The risks are firmly on the downside, based on the fear that the tensions on financial markets could increase and cause an even more marked global slowdown,’ Ansa quoted the IMF as saying.

The European Central Bank ‘can keep rates on hold in the short term as a result of the downside risks to growth and inflation stemming from the turbulence on markets’, Ansa reported the IMF as saying.

‘However, when these risks subside, further monetary tightening may be necessary,’ the IMF said.

Source: REUTERS (The Straits Times 10 Oct 07)

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