World growth slows on credit crunch
Updated: 2007-10-17 23:00
Rates Could Move Lower
The IMF said signs that US growth was likely to continue below trend would justify further interest rate cuts, provided inflation was contained. Meanwhile, rates should be held on hold in the euro zone rates and in Japan, where authorities should wait for clear signs of rising inflation, it added.
The IMF said its baseline forecast for global growth was based on the assumption that market liquidity would be gradually restored in the next few months and that interbank lending would revert to more normal conditions.
Still, the IMF said there was a distinct possibility that market turbulence may continue for some time, further dampening growth, particularly through the effect on housing markets in the United States and some European countries.
Countries in eastern Europe and former Soviet states with large current account deficits could be affected should capital inflows weaken, it added.
The immediate task for policy-makers was to restore market conditions and to safeguard the global expansion, the fund said, citing uncertainties over the scale of losses that investment banks were suffering because of the credit turmoil.
It said rising oil prices, which hit a record above $88 a barrel on Tuesday, were an additional risk to the global outlook, adding that further spikes in prices could not be ruled out amid limited spare production capacity.
Risks from persistent global economic imbalances -- large trade deficits in the United States and massive surpluses in China and oil-producing countries -- also weighed, although inflation worries had generally eased, the IMF said.
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