The International Monetary Fund has released its semi-annual global economic forecast, marking it down by nearly one-half-percent, mainly because of a slowdown in the United States.
Global growth is expected to slow to 4.8% in 2008, from the 5.2%advance of this year.
For the first time, says the IMF, fast growing China and India are the principal contributors to global growth. Those economies have been growing at a more than nine-percent annual rate, a pace expected to moderate only slightly in 2008.
IMF chief economist Simon Johnson says the U.S. slowdown has added to downside risks in the world economy. He says the recent turbulence in financial markets may not yet be fully contained. The U.S. treasury secretary and central bank chief are warning of further problems in the housing and home mortgage sectors.
Johnson says while the August and September turbulence in U.S. financial markets spread to Western Europe, it has not had much impact on Asia and most emerging market economies.
"Emerging markets have made tremendous progress in strengthening their financial systems and I think that progress is partly why the shocks did not jump that particular fire break, the fire break that separates industrialized from emerging markets. Going forward, I would not want to assume that that fire break will always hold."
The IMF does not foresee that soaring oil prices will push the world economy into recession. Major economies, it says, have boosted energy conservation so that economic growth is no longer so heavily linked to the price of oil.
In 2005 and 2006, the world economy grew at its fastest pace in 40 years. That recovery, says the IMF, is still intact, but there are more uncertainties now than two years ago.
IMF economists say the Chinese currency is undervalued and its exchange rate needs to rise at a faster pace. They generally applaud the 20% decline since 2002 in the value of the dollar. They say its decline has been orderly and has contributed to an easing of financial imbalances. The dollar's decline has reduced the U.S. trade deficit from 7% to 5.1% of U.S. economic output.
China, however, aided by a weak renminbi, is still accumulating huge reserves as its trade surplus continues to rise.
The IMF forecast is released twice a year in advance of meetings of world finance ministers.
