Global economic growth will decelerate due to the current financial market turbulence stemming from the crisis in the U.S. housing sector, according to two international financial institutions.
"Risks to the outlook lie firmly on the downside, centering around the concern that financial market strains could continue and trigger a more pronounced global slowdown," the International Monetary Fund said at its 2007 annual meetings jointly held with its sister institution, the World Bank, here on Oct. 20-22.
In its twice-yearly World Economic Outlook report issued three days before the meetings, the Fund lowered its 2008 global economic growth forecast to 4.8 percent from the 5.2 percent pace it projected just a few months ago. Its forecast for 2007 is unchanged at 5.2 percent.
The greatest threat to the world economy is the financial market unrest stemming from the high-risk U.S. subprime mortgage sector, where loans were given to home buyers with poor credit histories, the Fund explained.
Despite the rising risks, the Fund said that the overall world economy is poised for a solid 4.8 percent growth in 2008, underpinned by generally sound fundamentals and strong momentum in the emerging market economies, such as China.
"The expansion is projected to remain above the long-term trend, notwithstanding recent financial market turbulence, with emerging market and developing countries leading the way," it said.
Meanwhile, members of the Bank's policy-setting Development Committee noted that "global economic growth remains strong and the direct impact of recent financial market turbulence on developing countries has been limited."
"We urged governments to continue implementing policies supporting economic resilience and urged the Bank and the Fund to support and monitor those efforts," the committee said in a statement Sunday following its 76th ministerial meeting.
Developing countries also urged the Fund to step up its surveillance of the United States and other advanced economies in light of the recent global credit crisis triggered by the U.S. subprime market troubles.
Finance ministers and central bankers from the Group of 24 developing countries stressed Friday that the crisis "underscored the need to improve the Fund's surveillance of the advanced economies, putting as much focus in evaluating their vulnerabilities as it does in emerging market economies."
Also Friday, finance ministers and central bankers from the world's most industrialized nations (the Group of Seven) warned that recent financial market turbulence, high oil prices, and weakness in the U.S. housing sector will likely slow global growth.
"Strong global fundamentals and well-capitalized financial institutions provide a sound and resilient basis but uneven conditions are likely to persist for some time and will require close monitoring," they said.
The ministers and bankers called for action to prevent future unrest. "We expect market participants to address many of the shortcomings that were exposed by recent events," they said.
On Monday, chief of the Fund Rodrigo de Rato said that "the central question now is whether the global economy is at an inflection point."
"So far, it seems that growth will continue, although at a slower pace than in the past two years," he told the meetings.
"We need to consider what actions we can take to limit the damage, and also what lessons we can learn from the crisis," said the chief of the 185-nation institution.
President of the Bank, Robert Zoellick, declared Sunday it would place agriculture at the heart of the anti-poverty fight, and this would be supported by private funding.
In addition, ministers from developing countries reiterated the importance of increasing the representation of developing countries in the governance of the Bank and the Fund "to redress the legitimacy and democratic deficits" that have "eroded their effectiveness and public support."
They stressed Friday that "a significant redistribution of voting power in favor of emerging markets and developing countries as a group should be the overarching objective of the reform."
This redistribution should not be at the expense of other emerging markets and developing countries, they added.
Source:Xinhua
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