IMF Says World Economic Growth to Slow in ’99

Interest rate cuts in the United States and elsewhere have calmed jittery financial markets, but world economic growth will be slower in 1999 than previously thought, the International Monetary Fund said Monday.

In its latest World Economic Outlook, the IMF trimmed its forecast for global growth to 2.2% next year and highlighted risks, including a possible sudden souring in U.S. stock prices that it said were potential threats to growth.

“We continue to see significant risks--risks that are overall for the world economy predominantly on the downside,” Flemming Larsen, deputy director of the IMF’s research department, told a news conference.

The Washington-based lending agency, which orchestrated five massive bailouts since financial turmoil over the last year rocked world markets, said the Federal Reserve has done enough for now in lowering interest rates but suggested Europe has room for additional rate cuts.

There remains a greater risk of an unexpected shock to global growth than of positive surprises, the IMF warned.

“While the danger of a global recession does seem to have diminished, the supply of funds to most emerging-market economies is still sharply reduced, and conditions in financial markets remain fragile in several respects,” the report said.

The IMF’s previous report, issued in September, said the world economy would grow 2.5% next year. In its new report, the fund also revised global growth in 1998 --but upward to 2.2% from a previous forecast of 2%.

The IMF’s outlook on global economic prospects has brightened from three months ago, when it feared “risks of a deeper, wider and more prolonged downturn” were escalating.

It attributed the improvement to interest rate cuts around the world to spur growth and to calm in financial markets.

“Conditions in financial markets have calmed down since early October, thanks in part to timely actions to ease monetary conditions by leading authorities of North America, Europe and Asia,” IMF chief economist Michael Mussa said.

The report stressed remaining risks.

The IMF said the outlook for some countries, including Japan, Brazil and Russia, had deteriorated far more than expected. The report also warned that growth might not return to some of Asia’s hardest-hit economies until 2000.

The IMF has been revising world growth forecasts down steadily for over a year to take account of the deepening impact of financial crises in Asia and beyond. Its first 1999 world growth forecast, issued in April, was 3.7%.

In response to the financial crisis, multibillion-dollar bailouts have been assembled for the hardest-hit economies of Asia--Indonesia, South Korea and Thailand--and for countries battered by contagion--Russia and Brazil.

The IMF also attributed the calm in financial markets primarily to new policy measures by Japan and to efforts by Brazil to avert a financial meltdown in Latin America.

The IMF’s report forecast U.S. growth at 1.8% in 1999, down from 3.6% this year. Japan’s economy will contract by 0.5% next year, after shrinking 2.8% this year, it said.

Despite financial woes among some member countries, Asia will outpace other developing regions with growth of 4.3% in 1999 versus 2.6% this year. China will lead the pack with growth of 6.6% in 1999, compared with 7.2% in 1998.

But the economies of South Korea, Indonesia and Malaysia will continue to contract in 1999.

South Korean output will shrink 1% in 1999, after sliding 7% this year. Indonesia’s output is forecast to fall 3.4% in 1999, after a 15.3% contraction this year, while Malaysia’s GDP will shrink another 2%, after declining 7.5% this year.

Russia’s economy will contract by 8.3% next year, more than the 5.7% it was expected to shrink in 1998. Brazil’s economy will contract 1% in 1999, after growing 0.5% this year.