WASHINGTON, 14 April 2005 — Global economic growth is set to slow to 4.3 percent this year, the IMF said yesterday as it expressed anxiety over high oil prices and the flagging performances of Europe and Japan.
In its semi-annual World Economic Outlook report, the International Monetary Fund said growth was still too reliant on demand from the United States and China.
The world economy is likely to moderate this year from estimated growth of 5.1 percent registered in 2004, the report said. But next year would see a slight rebound to 4.4 percent. “Most recent data suggest that this slowdown has begun to bottom out, and forward-looking indicators appear consistent with solid expansion in 2005, although rising oil prices are an increasing risk,” it said.
The overall picture masks “growing divergences” across different parts of the world. The United States, China and most emerging markets have powered ahead, the report said. “In contrast, growth in Europe and Japan has been disappointing, reflecting — to different extents — faltering exports and weak final domestic demand.”
The global economy is also out of kilter owing to the record current account deficit being run up in the United States, the IMF warned.
The report said that Americans’ insatiable demand for imported goods, combined with the lackluster demand for US exports in Europe and Japan, have left the global system vulnerable to a shock. The resulting pressure on the dollar is unwelcome if it results in “further, and possibly disorderly, depreciation” of the world’s reserve currency. A sharp rise in US interest rates would also have big knock-on effects. And having recently surpassed $58 a barrel for the first time, the oil market “remains highly vulnerable to shocks, with significant upside risk over the longer term”.
The IMF said that high oil prices were here to stay, and would be directly responsible for between 0.25 and 0.5 percentage points being shaved off global growth this year. The report projected that oil consumption would increase from about 82 million barrels a day last year to almost 140 million in 2030, owing to rising living standards in poorer nations.
China alone will contribute almost a quarter to the increase in demand between 2004 and 2030 due to its fast economic growth and large population.
With the global economic imbalances thrown into the mix, the IMF said the picture was worrying. “If this situation persists, it will widen global imbalances, it would also raise the risks of a more significant slowdown later on, especially if growth in the United States and China were to weaken simultaneously.”
