World Growth Forecast hacked!

As the result of the subprime crisis, the IMF slashed the Wolrd Growth forecast: the world economy will slow to 3.7% in 2008 and 2009 which is 1.25% lower than the growth in 2007. The US should be the first one to go in recession with an economic growth forecast of 0.5% in 2008 and 0.6% in 2009, which means a slow recovery. But it is known that there is one in four chance of a global recession when the world growth falls below 3%. The subprime crisis represent the largest financial shock since the Great Depression.

The problems in the US housing market will lead to a world downturn as the house price inflation will follow in some European countries such as Spain, Ireland and the UK, making a slowdown more than possible. "House prices have already fallen by around 10% in the US by some measures, and the IMF says that they may be over-valued by more than 20% in the UK, Ireland and Spain".

President Bush reckoned that the US economy is going through a though period (see the article: "One More Time...") as all the economic factors are slow. Even if the Fed is trying to cope with them to reboost the growth, it could become a main issue for Europe, which is the biggest trading partner with the US. In the Eurozone, the growth forecasts are 1.4% in 2008 and 1.2% in 2009, which is higher than in the US where the slowdown has already started. The ECB has kept interest rates unchanged because on the opposit of the Fed (which is looking for the growth), the main objective of the EBC is to cope with the inflation. In future, the EBC could fix the interest rates regarding the rising house prices to avoid it to go "out of normal valuation ranges".

This slowdown should not affect directly the fast growing markets such as China or India economies but they will be affected by a slowdown of the trade with these occidentals economies: the imports into rich countries will slow quickly due to the beginning of the recession and that will lead to a cut in the rate of growth of exports by developing countries.

Once again, the US is worried about their home economic wealth (seven rate cut since September) but seems to forget that its actions have serious repercussions on the rest of the world!