Wednesday, September 13, 2006
[RealEdge] BT : IMF: Risks to global growth have risen
| Published September 13, 2006  | |
| IMF: Risks to global growth have risen World economic outlook still good, but financial markets seem ill-prepared for potential dangers
By ANNA TEO
(SINGAPORE) While the outlook remains good for economies around the world, downside risks have risen that could trigger sharp corrections, an International Monetary Fund (IMF) official warned yesterday. Notably, financial markets appear to have made scant provision for the risks, which include a more pronounced slowdown in the US economy, further rises in oil prices, and higher interest rates to contain inflationary pressures, Jaime Caruana, director of the IMF's monetary and capital markets department, said at a media conference here. He was speaking at the release of the Fund's biannual Global Financial Stability Report ahead of the IMF and World Bank annual meetings starting this week. IMF head Rodrigo de Rato had a similar message at an Opec conference in Vienna yesterday. He forecast a 'continued smooth ride' for the global economy, but pointed to signs of looming trouble after several years of brisk growth, citing a slowing US housing market and the possibility of a major oil supply disruption as two of the biggest threats to global growth. The Washington-based Fund also warned in its Global Financial Stability Report of the risks of a 'disorderly' adjustment to a dollar decline amid lingering global imbalances. The balance of risks to the fairly benign global economic outlook is 'now slanted to the downside', the report noted, citing also geopolitical turmoil. 'The potential for a disorderly unwinding of global imbalances remains a concern,' it added. 'We should all be prepared for a more difficult environment if these risks ... materialise, 'While the global economy and financial markets have been resilient and growth prospects remain good ... there are downside risks that have increased, and policymakers in both mature and emerging markets therefore face renewed challenges in ensuring balanced global growth and financial stability,' he said. The global financial system is now more resilient as financial markets have significantly improved their regulatory and supervisory frameworks, and financial institutions have honed their risk management capabilities, he noted. Still, it is important to 'be ready' in the event that any of the risks materialise. The market turbulence in May-June, with emerging markets particularly hard hit, was a timely wake-up call for policymakers to strengthen macroeconomic policies and push on with needed structural reforms, the IMF report said. Should global growth falter, financial markets could 'undergo more severe corrections' than the recent turmoil, 'especially because markets appear to be pricing in the baseline growth scenario with little provision for risk', it added. 'Financial supervisors need to continue to improve market infrastructure so as to limit the scope for amplifying market volatility.' IMF will tomorrow publish the latest update of its World Economic Outlook, with forecasts of global, regional and country-specific growth and trends. Despite its strong warnings on financial market risks, the IMF believes the global economy will 'most likely' see 'a continuation of solid growth and contained inflation'. This, however, assumes that the growing downside risks will be well managed and contained. |
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