Slowdown in World Economic Growth

Global growth will experience a slowdown in 2008 due to the economic troubles in the United States. The IMF (International Monetary Fund) predicts that economic growth will slow to 3.7 percent in 2008. Emerging economies though likely to fare better, will also be adversely affected.

According to the IMF’s Chief Economist Simon Johnson, other worries includes the wake of inflationary pressures due to increasing commodity prices, large account surpluses, and the uneven pattern of exchange rate movement around the world.

Growth Economic Outlook (annual percentage change)
  Current Projections
 

2006

2007

2008

2009

World output

5.0

4.9

3.7

3.8

Advance economies

3.0

2.7

1.3

1.3

United States

2.9

2.2

0.5

0.6

Euro area

2.8

2.6

1.4

1.2

Germany

2.9

2.5

1.4

1.0

France

2.0

1.9

1.4

1.2

Italy

1.8

1.5

0.3

0.3

Spain

3.9

3.8

1.8

1.7

Japan

2.4

2.1

1.4

1.5

United Kingdom

2.9

3.1

1.6

1.6

Canada

2.8

2.7

1.3

1.9

Emerging and developing economies

7.8

7.9

6.7

6.6

Africa

5.9

6.2

6.3

6.4

Sub-Sahara

6.4

6.8

6.6

6.7

Central and eastern Europe

6.6

5.8

4.4

4.3

Russia

7.4

8.1

6.8

6.3

China

11.1

11.4

9.3

9.5

India

9.7

9.2

7.9

8.0

Middle East

5.8

5.8

6.1

6.1

Western Hemisphere

5.5

5.6

4.4

3.6

Source: IMF, World Economic Outlook, April 2008

The United States will enter a harsh period in 2008 (mild recession) due to the subprime and financial crisis they are currently facing. Consumption is seen to remain weak due to the detereorating labor market conditions, sluggish growth in disposable incomes, higher energy costs, and higher constraints on household borrowings.

The IMF further predicts that house prices would have fallen 14-20 percent from 2007 until the end of 2008.

Commodity prices are causing concerns all across the globe as crude oil, tin, nickel, soybeans, corn, and wheat have reached record highs in current U.S. dollar terms. The IMF commodity price index rose 44 percent from February 2007 to February 2008. Biofuel demands are also increasing the demand for major food crops like corn.

High commodity and fuel prices have led to widespread concern of inflation worldwide. According to the IMF, headline inflation (total inflation) have increased across the globe. Similarly, core inflation (inflation excluding food and energy prices) is also seen to be increasing.

Economic instability have a spillover effect on political stability. Increased cost of living due to inflation and food shortages have caused massive riots and strikes worldwide. Furthermore, opposition parties campaigning for economic reform is gaining firm support around the globe.

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