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The International Monetary Fund [IMF] has projected that the world economy will continue slowing in 2008 but gather strength in 2009.

In a speech delivered at a conference in Frankfurt, Germany, John Lipsky - first deputy managing director of the IMF said :

The global economy is projected to slow further in the second half of 2008, with a recovery gaining pace gradually in 2009.

The economic recovery according to IMF, would be driven by the bottoming out of the U.S. housing sector, a robust domestic demand in many emerging economies, and as the adverse terms-of-trade effects of high oil prices during fiscal ‘08 begin to unwind in 2009.

During his speech, Mr. Lipsky also addressed the subject of core inflation in advanced economies, noting that it has remained broadly contained, but warned that it has increased markedly in emerging economies.

He said:

Looking ahead, we see commodity prices likely to stay at much higher levels than previously in real terms and highly sensitive to views about demand and supply trends.

click to enlarge

IMF Inflation Graph

  • In the U.S. the IMF expects growth of about 1% in ‘08 on a Q4/Q4 basis, recovering gradually to 1.5% in ‘09.
  • For the Eurozone, the IMF projects limited growth on a Q4/Q4 basis to 0.75% in ‘08, climbing to 1.5% in ‘09, from 1.3 % and 1.7% respectively in July.
  • Global economic growth may slow to about 3% in late 2008 from 5% in the previous year before re-accelerating toward 4% in 2009.

The Washington-based fund will release its latest growth forecasts next month.

Source: Global Economy: Looking Ahead to 2009