The world economy could be plunged into
recession by soaring oil prices or a sudden
collapse in the dollar, the International
Monetary Fund warned yesterday.
The world's financial watchdog said there was a
one in five chance that crude prices could hit
$80 a barrel by Christmas - surpassing, in real
terms, the prices witnessed during the 1970s oil
crisis. The IMF toughened up its language on the
danger posed by the imbalances between the
economies of the West and the powerhouse regions
of Asia and China, unusually using the world
"recession" in its key forecast document.
The IMF stuck to its forecast for near-record
global growth of 4.3 per cent and described the
expansion as "broadly on track". Raghuram Rajan,
the head of the IMF's research department said:
"Oil is a clear and present danger. Oil price
increases are unlikely to be benign going
forward and are already affecting emerging
markets and developing countries."
The IMF echoed the US Federal Reserve, which
raised interest rates on Tuesday, in saying that
Hurricane Katrina would take just 0.1 percentage
points off US GDP. He warned that while the
world had been resilient through recent shocks,
this had been a result of booms in consumer
spending and house prices, thanks to loose
monetary policy which had added to the
imbalances between the West and Asia. It said
the main risk came from the high level of the US
dollar and the excessive dependence on the US
economy on consumers buying cheap goods made in
Asia.
"A
sharp decline in the demand for US assets,
combined with rising protectionist pressures,
could well lead to a global recession," the
report said.
The IMF cut its growth forecasts for the euro
area this year to 1.2 per cent from April's 1.6
per cent. It said Italy would post no growth
this year compared with the 1.2 per cent it
forecast six months ago. Mr Rajan said: "Weak
domestic demand continues to be the main problem
in the euro area. Europe's citizens don't seem
convinced the bitter medicine of continued
structural reforms will cure the stasis that
afflicts the Continent."
The downgrade contrasted with China, whose
growth forecast for this year was revised up to
9 from 8.5 per cent. The IMF also raised its
forecast for India to 7.1 from 6.6 per cent.
The world economy could be plunged into
recession by soaring oil prices or a sudden
collapse in the dollar, the International
Monetary Fund warned yesterday.
The world's financial watchdog said there was a
one in five chance that crude prices could hit
$80 a barrel by Christmas - surpassing, in real
terms, the prices witnessed during the 1970s oil
crisis. The IMF toughened up its language on the
danger posed by the imbalances between the
economies of the West and the powerhouse regions
of Asia and China, unusually using the world
"recession" in its key forecast document.
The IMF stuck to its forecast for near-record
global growth of 4.3 per cent and described the
expansion as "broadly on track". Raghuram Rajan,
the head of the IMF's research department said:
"Oil is a clear and present danger. Oil price
increases are unlikely to be benign going
forward and are already affecting emerging
markets and developing countries."
The IMF echoed the US Federal Reserve, which
raised interest rates on Tuesday, in saying that
Hurricane Katrina would take just 0.1 percentage
points off US GDP. He warned that while the
world had been resilient through recent shocks,
this had been a result of booms in consumer
spending and house prices, thanks to loose
monetary policy which had added to the
imbalances between the West and Asia. It said
the main risk came from the high level of the US
dollar and the excessive dependence on the US
economy on consumers buying cheap goods made in
Asia.
"A
sharp decline in the demand for US assets,
combined with rising protectionist pressures,
could well lead to a global recession," the
report said.
The IMF cut its growth forecasts for the euro
area this year to 1.2 per cent from April's 1.6
per cent. It said Italy would post no growth
this year compared with the 1.2 per cent it
forecast six months ago. Mr Rajan said: "Weak
domestic demand continues to be the main problem
in the euro area. Europe's citizens don't seem
convinced the bitter medicine of continued
structural reforms will cure the stasis that
afflicts the Continent."
The downgrade contrasted with China, whose
growth forecast for this year was revised up to
9 from 8.5 per cent. The IMF also raised its
forecast for India to 7.1 from 6.6 per cent.
