IMF has published its economic outlook for the next year in its IMF World Economic Outlook 2008. First things first, there are three assumptions on the basis of which the forecasts are made:
- Commodities and oil prices are likely to stabilize, relieving inflationary pressures.
- U.S. housing prices will hit bottom by end of next year.
- Credit is going to remain tight, but with the measures put in place, further worsening of the financial markets will be stopped.
These seem to be realistic scenarios and it is quite likely that all the three situations will play out by the end of next year.
IMF predicts that if these assumptions come true, then world growth will begin to recover by the end of 2009, albeit, very slowly.
- The global growth levels are expected to go down from 5% in 2007 to 3.9% in 2008 to 3% in 2009.
- Commodity prices are expected to stabilize in 2009, but they will still be at a twenty year high.
- US Housing sector will reach rock bottom in the year 2009.
- Emerging economies are expected to be a source of resilience. Their growth rate will cool off but they will continue to grow at a higher pace.
- The advanced economies will be in or close to recession in the second half of 2008 and early 2009. The recovery is expected to start later in 2009. This recovery will be slower than past standards.
- Inflation will come below 2% in the advanced economies in 2009 and in the emerging economies inflation will slow down more gradually.
The IMF warns that the there are two threats that will make the above predictions worse. First one is that the financial crisis does not get contained as expected. Traditionally, crises that have started in the banking sector have spread more rapidly to the other sectors of the economy and therefore this threat is more potent.
The second risk is that the housing sector may not hit bottom as expected. If the housing sector doesn’t hit bottom as expected, that will make the recession prolonged and recovery will be delayed.
These are just some of the highlights of the IMF report. The report itself is quite in depth in analyzing every aspect of the current situation and readers who are interested to dig deep in this should definitely check out the link and go through the report.