APRIL 26, 11:05 EST

Sharp Slowdown in Global Growth

By MARTIN CRUTSINGER AP Economics Writer

WASHINGTON (AP) — The global economy will slow significantly this year and could face even greater problems if the U.S. economy weakens further, the International Monetary Fund said Thursday in a sober assessment of world conditions.

The forecast represented a sharp markdown in growth projections since September, and the international lending agency cautioned that even the lower figure may prove too optimistic.

``The prospects for global growth have weakened considerably, led by a marked slowdown in the United States, a stalling recovery in Japan and moderating growth in Europe and a number of emerging market countries,'' the IMF said in its new World Economic Outlook.

The IMF projected that the global economy would expand this year by 3.2 percent, a full percentage point lower than it forecast in its last economic outlook in September.

The new forecast was released as the 183-nation IMF and its sister lending organization, the World Bank, prepared for joint spring meetings. Officials were hoping the sessions would attract fewer protesters than a year ago, when police arrested more than 1,300 who clogged intersections around the IMF and World Bank headquarters near the White House.

The IMF's new growth projection would mark a sharp slowdown from global growth of 4.8 percent in 2000, reflecting a dramatic slowing of the U.S. economy, the world's biggest.

The IMF projected the U.S. economy would grow this year by just 1.5 percent, far below the 5 percent growth in 2000 and 1.7 percentage points lower than IMF's September forecast.

IMF chief economist Michael Mussa told reporters at a briefing Thursday that so far the Federal Reserve has responded appropriately with its aggressive four interest rate cuts this year.

He said lower rates combined with tax cuts being pushed by the Bush administration should be enough to keep the United States out of a recession and also provide support to the global economy.

Mussa was less complimentary of the economic policies of the European Central Bank, which on Thursday refused once again to cut interest rates, something the IMF said is needed to battle global weakness.

``In a slowdown such as we are now experiencing ... it is desirable that the central bank of the second-largest economic area of the world needs to become part of the solution rather than part of the problem,'' Mussa said.

The IMF projected that the United States would rebound in 2002 with growth of 2.5 percent, a strengthening that should help produce global growth of 3.9 percent next year.

However, it cautioned that this forecast could be put in jeopardy if U.S. stock prices plunge further or if America's huge trade deficit leads to a sudden drop in the value of the dollar.

``The outlook remains subject to considerable uncertainty and a deeper and more prolonged downturn is clearly possible,'' the IMF cautioned.

One cause for concern is what might happen in Japan, the world's second-largest economy, which has struggled with a decade-long bout of weakness.

The IMF forecast the Japanese economy will grow by a lackluster 0.6 percent this year, 1.3 percentage points lower than its September estimate. It put growth in 2002 at 1.5 percent.

For Europe, the IMF forecast 2.8 percent growth in the 12 nations that share the euro currency, a full percentage point lower than in September.

The world's developing countries should experience growth of 5 percent this year, a drop of 0.7 percent from the IMF's September forecast. The reduction was attributed in part to weaker demand for foreign goods by U.S. consumers.

The IMF also said it believed that reforms undertaken since the 1997-98 global financial crisis, which pushed 40 percent of the world into steep recessions, had made developing countries less vulnerable.

The IMF said the most likely outcome for the global economy is that ``activity in the United States picks up during the second half of the year, while growth in Europe remains reasonably robust and the recovery in Japan resumes in 2002.''

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On the Net:

IMF: http://www.imf.org

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-- Carl Jenkins (somewherepress@aol.com), April 26, 2001