Decoupling seems ever more unlikely…
From the IMF:
Buffeted by recent financial market turbulence and a weakening U.S. performance, world growth is projected to slow to 4.1 percent in 2008, down from an estimated 4.9 percent last year, the IMF said in its quarterly update for the global economy.
Financial market strains originating in the U.S. subprime sector–and associated losses on bank balance sheets–have intensified, while the recent steep sell-off in global equity markets was symptomatic of rising uncertainty, the IMF stated.
While projecting growth of above four percent for the global economy, the IMF said there was a risk that the ongoing turmoil in financial markets would further reduce domestic demand in the advanced economies with more significant spillovers into emerging market and developing countries. “Growth in emerging market countries that are heavily dependent on capital inflows could be particularly affected, while the strong momentum of domestic demand in some emerging market countries provides upside potential,” the World Economic Outlook Update said.
A number of other risks remain elevated. “Monetary policy faces the difficult challenge of blancing the risks of higher inflation and slower economic activity, although a possible softening of oil prices could moderate inflation pressures,” the IMF said.
The IMF made the following comments and projections for key areas of the global economy:
Economic growth in the United States appears to have slowed notably in the fourth quarter of 2007, with recent indicators showing weakening of manufacturing and housing sector activity, employment, and consumption.
U.S. growth is projected by the IMF to slow to 1.5 percent this year, down from 2.2 percent last year, but the update points out that this number for 2008 reflects the carryover from 2007. Projections on a quarterly basis (Q4-Q4) give a better sense of the slowing growth momentum. On this basis, growth is projected at 0.8 percent in the fourth quarter of 2008, compared with 2.6 percent during the same period of 2007.
The IMF has said that the recent move by the U.S. Federal Reserve to cut the Federal funds rate by 75 basis points was “appropriate and helpful.” [Emphasis added — mdc]
The Update is here.
Deutsche Bank revised their forecasts yesterday. They now predict 0% growth in 2008Q1, 1% in Q2.