Credit crunch prompts IMF recession warning

Sep 25 2007 by Iain Laing, The Journal

THE International Monetary Fund says an economic slowdown is becoming likely because of the global credit crunch.

The IMF, which supervises the world financial system, warned in its global stability report that the “downside risks [to growth] have increased significantly”.

IMF managing director Rodrigo Rato said that the biggest impact of the crisis will be on the US economy in 2008.

His comments came soon after a former Federal Reserve chairman said there was a 50% chance of a recession in the US. The IMF said that even if credit markets recover, the turbulence may have “far reaching and significant” consequences.

While world economic growth should remain high next year – driven by the buoyant Asian economies – it will be lower than the levels of 2006 and 2007, said Mr Rato. The longer financial markets remain in turmoil, the greater the risk of a further slowdown, he added – and the strong euro could be a particular problem.

Some independent forecasters have suggested that the US economy might only grow by 1% to 1.5% next year, half its current rate.