Developing States Better Able To Cope With Global Slowdown: IMF

“Developing countries have coped well so far with the fallout from the global credit squeeze sparked by the US subprime home-loan crisis and are better placed now to cope with such shocks than before, the International Monetary Fund (IMF) said Wednesday.

While they cannot be immune to a downturn in the industrialized world, reforms and globalization have made them stronger and more resilient, the International Monetary Fund said in its biannual review of the world economy. They now account for a much greater proportion of global activity and their trade ties are now more diversified, reducing their dependence on first world markets, it said. …

‘Global activity over the past five years has been dominated by the emerging and developing economies - China has accounted for about one-quarter of global growth; Brazil, China, India, and Russia for almost one-half; and all the emerging and developing economies together for about two-thirds, compared with about one-half in the 1970s.’ …” [Agence France Presse/Factiva]

WP writes that “…The Fund also expects the economic fallout of the crises to stick around for a while, with growth of only 0.6 percent in 2009. Those figures contrast with 2.2 percent growth in 2007. And that weakness will spread broadly, the IMF predicted, with slower growth in every major economy around the world except in the Middle East, which benefits from high oil prices.

The total value of goods and services produced in the world will rise 3.7 percent in 2008, down from an estimated 4.9 percent in 2007, according to the World Economic Outlook. There is a 25 percent chance that worldwide growth will be 3 percent or lower, the Fund said, which would amount to a global recession. …” [The Washington Post/Factiva]

WSJ reports that “… ‘Economic growth has nearly stalled,’ Simon Johnson, the IMF's Chief Economist, said at a news conference. … The IMF cut its US growth forecast by a percentage point from January to 0.5 percent this year, and sees it edging up to 0.6 percent next year. …

Johnson said the financial turmoil has had an ‘unfortunate side effect of pushing up commodity prices.’ He portrayed policy options as three lines of defense - monetary-policy easing, fiscal stimulus and government funding to prop up struggling financial institutions or asset classes.

Rising commodity prices are ‘restricting the room not just for monetary policy, but for fiscal policy to be effective,’ said Johnson, so governments may have to consider using public funds. ‘Sometimes it may be the case that monetary policy may be insufficient, fiscal policy may not be fully available, and therefore one has to consider all the alternatives that a responsible government has at its disposal.” [The Wall Street Journal/Factiva]

FT notes that “The IMF's new economic forecasts offer a much gloomier view of the outlook for the world economy than the consensus of private sector economists and economic policymakers. There are two key elements to this bleak outlook. First, the IMF expects that the downturn in the US will be much more protracted, though not necessarily very much deeper, than most economists are projecting at present.

Secondly, it believes that there will be a credit squeeze in Europe as well as the US, which will curtail growth and raise the risk of significant house price declines in some European economies as well. …” [The Financial Times (UK)]