Thursday, October 18, 2007

IMF: World economic growth to slow in 2008

- World growth slows, credit crunch clouds outlook-IMF - Reuters
- Dollar drops to record low - Reuters

Though the world economy is solid at the moment, the IMF is not hopeful that it will continual to burgeon and grow come next year at this time. This slowdown is likely to be a result of unfavorable conditions in the United States and Europe, particularly the troubles with the global credit market. The IMF’s July forecast for 2007 is staying at, for now, 5.2 percent economic growth, but its 2008 forecast dropped .4 percentage point to 4.8 percent.

The IMF credited China for the current growth in the economy, and that country’s economy is expected to grow at a celeritous rate through the year at 11.5 percent, but will begin to slow down in 2008, with a predicted rate of growth of about 10 percent; however, that minor decrease in speed will not be blamed for the overall decrease in growth next year. The United States and the now infamous subprime mortgage debacle will seemingly be the culprits once again, as growth in the U.S. will drop from 2.8 percent to 1.9, and will have an affect on the markets in other countries as well.

Additionally, the IMF retained its position that the U.S. dollar is overvalued, and despite an already waning strength, needed to depreciate further. Unfortunately, the strength of the Euro against the dollar has prompted some officials in that region to put pressure on politicians in the U.S., pleading that they strengthen the dollar in order to improve trade. Yet the IMF remains assured that the Euro itself was appropriately valued. However, the IMF did resonate the concerns of the U.S. and other countries regarding the value of the yuan, stating that more flexibility is needed if the global economy is going to untangle this web of problems of which the future decline in growth is a symptom.

Question: What could countries be doing at the political level to facilitate the changes the IMF recommends?

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