Fears of recession mount as IMF cuts world growth forecast to 2.4%

The International Monetary Fund yesterday cut its forecasts for world economic growth for both this year and next, to a level that analysts view as recessionary.

Horst Köhler, the IMF's managing director, forecast world economic growth of 2.4 per cent for both years, as the Fund revised down its earlier predictions of 2.6 per cent growth this year and 3.5 per cent growth in 2002 to take account of the terrorist attacks on the US.

Many economists believe that global growth of less than 2.5 per cent constitutes a recession.

"The situation is difficult," Mr Köhler conceded, adding that he thought it was "manageable" and he continued to expect a recovery next year. Nevertheless, he cut forecasts for the three major economies of the US, Japan and Europe.

Growth in the US is now forecast at 1.1 per cent this year and 0.7 per cent in 2002, down from estimates of 1.3 per cent and 2.2 per cent, respectively.

Japan, meanwhile, is seen in outright recession both this year and next with the economy expected to contract by 0.9 per cent and 1.3 per cent respectively. The IMF was previously predicting a 0.5 per cent contraction this year and 0.2 per cent growth next year.

In the European Union, the IMF predicts growth of 1.7 per cent this year and 1.4 per cent next year, down from earlier forecasts of 1.8 per cent and 2.2 per cent respectively.

The reductions in economic growth forecasts are the latest in a series of cuts by the IMF. A year ago, the Fund was forecasting global economic growth of 4.2 per cent this year. Last year, the world economy expanded by 4.7 per cent.

Mr Köhler, speaking ahead of this weekend's IMF meeting in Ottawa, remained upbeat despite the gloomy prognosis.

"Major fundamentals in the global economy are still good and we should not confuse ourselves now by embarking on gloom and doom scenarios," he said.