*EPF418 04/26/01
IMF Forecasts Slower Global Growth in 2001 as U.S. Economy Slows
(Global slowdown greater than expected, but no recession) (990)
By Warner Rose
Washington File Staff Writer

Washington -- The long-expected slowdown in the United States and low growth in other major industrialized countries are slowing the expansion of the global economy, now forecast to grow at a lower-than-anticipated rate of 3.2 percent in 2001, according to the International Monetary Fund (IMF).

The U.S. economy, the mainstay of global economic expansion for the past decade, is expected to grow 1.5 percent this year, down from 5 percent in 2000, said Michael Mussa, IMF economic counselor and director of the Fund's research department. The global economy grew 4.8 percent in 2000.

The new IMF global growth forecast for 2001 is a percentage point lower than what the Fund was projecting six months ago and the U.S. growth rate is 1.7 percentage points lower, said Mussa.

"It is clear than global growth is slowing more than was anticipated or is desirable," Mussa said April 26 at a press conference for the release of the IMF's biannual "World Economic Outlook" (WEO) report. The WEO was released as world financial officials gathered in Washington for the April 26-30 IMF/World Bank meetings.

A review of growth prospects around the world shows "we are clearly looking at a substantial and broadly distributed slowdown in global economic growth this year, but not, at least not yet, a likely global recession," Mussa said.

Mussa singled out for criticism the European Central Bank (ECB), which sets monetary policy for euro area -- the 12 countries, including France, Germany and Italy, that use the euro -- for failing to lower interest rates. By not acting to cut rates, the ECB has hurt the euro exchange rate, slowed growth in the 12-nation area and contributed to the slowing of the world economy, Mussa said.

"When general economic slowdown is the main problem, and when inflation is not likely to be a continuing threat," he said, "the euro area, the second largest economic area in the world, needs to become part of the solution, rather than part of the problem of slowing global growth."

The IMF is forecasting that the euro area economy will grow by 2.4 percent in 2001, one percentage point lower than the forecast of six months ago. It grew 3.4 percent in 2000.

The WEO forecasts that the U.S economy -- which accounts for about one-quarter of world output -- will grow by 2.5 percent in 2002, Mussa noted, adding that a return to the 5 percent and greater growth levels of the late 1990s is not expected or desirable. Factors helping the U.S. economy along include the willingness of the U.S. Federal Reserve to move quickly to lower short-term interest rates, the likely boost for the economy of the anticipated tax cut later this year and the recovery already seen in U.S. equity prices, Mussa said.

Projected 2001 growth rates in all other major industrialized countries are lower than in 2000, and in every case the new IMF forecast is lower than the forecast of six months ago.

Mussa cited a continuation of the decade-long weakness in Japan, with growth this year now expected around 0.6 percent and next year 1.5 percent. Certain steps can be taken under Japan's new monetary policy framework to spur the economy beyond lowering Japan's already zero interest rates, he said, adding that new Prime Minister Junichiro Koizumi has made resolving the problems in Japan's financial system a high priority.

Other Asian economies have been affected by the U.S. slowdown. The newly industrialized Asian economies -- Hong Kong, Korea, Singapore and Taiwan -- are expected to grow 3.8 percent in 2001, down from 8.2 percent in 2000. Other Asian economies have also slowed down. China and India, however, are both expected to maintain good growth rates, Mussa said, citing those countries "greater relative isolation from the from the rest of the global economy" as helping them continue to expand.

Growth in the Western Hemisphere is expected to decline slightly in 2001 to 3.7 percent, but the Brazilian economy, the largest in Latin America, will grow 4.5 percent, faster than 2000. Mussa expressed skepticism about the growth projections for Latin America, citing the growing financial problems in Argentina. "There has been an adverse spillover clearly from Argentina onto other emerging markets, particularly in Latin America and including especially Brazil, and we have seen the Brazilian currency come under significant downward pressure," he said.

"With the global slowdown, and with the recent problems in Argentina, I expect that by the time of the next WEO, reality will have made a somewhat greater dent on the IMF staff's continued optimism for South America," he said.

The WEO is available on the Internet at: http://www.imf.org/external/pubs/ft/weo/2001/01/index.htm

Following are key projections from the report:

(Annual percentage change)

Current Projections
2000 2001 2002

World Output 4.8 3.2 3.9

Advanced economies 4.1 1.9 2.7

Major industrial nations 3.8 1.6 2.4

United States 5.0 1.5 2.5

Japan 1.7 0.6 1.5

Germany 3.0 1.9 2.6

France 3.2 2.6 2.6

Italy 2.9 2.0 2.5

United Kingdom 3.0 2.6 2.8

Canada 4.7 2.3 2.4

Other advanced economies 5.2 3.0 3.8

Developing countries 5.8 5.0 5.6

Africa 3.0 4.2 4.4

Asia 6.9 5.9 6.3

China 8.0 7.0 7.1

India 6.4 5.6 6.1

ASEAN-4 5.0 3.4 4.7

Middle East, Malta, Turkey 5.4 2.9 4.6

Western Hemisphere 4.1 3.7 4.4

Brazil 4.2 4.5 4.5

Countries in transition 5.8 4.0 4.2

Central and eastern Europe 3.8 3.9 4.4

Commonwealth of Independent
States and Mongolia 7.1 4.1 4.1

Excluding Russia 6.3 4.2 4.2
Russia 7.5 4.0 4.0

Inflation (consumer prices)

Advanced economies 2.3 2.1 1.8

Developing nations 6.1 5.7 4.8

Countries in transition 20.1 15.3 10.0

Source: International Monetary Fund

(The Washington File is a product of the Office of International
Information Programs, U.S. Department of State. Website:
http://usinfo.state.gov)

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