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IMFSurvey Magazine: In the News

Financial Crisis Weighs on Global Economy

The speed and scale of recent financial market events have added to short-term uncertainties, IMF's Strauss-Kahn says (photo: Newscom)

SUBPRIME IMPACT

Financial Crisis Weighs on Global Economy

IMF Survey online

September 17, 2008

  • U.S. financial turmoil adversely impacting global growth prospects
  • IMF in touch with members to help them manage fallout
  • Falling oil prices provide some cushion to downside impact

The crisis in U.S. financial markets is raising uncertainty and dampening growth prospects around the world, but the IMF still expects a gradual economic recovery during 2009, IMF Managing Director Dominique Strauss-Kahn said.

Speaking in Jeddah, Saudi Arabia, after the latest U.S. action to stem the worsening crisis on Wall Street, Strauss-Kahn said that the financial turmoil was very serious and other major financial institutions could be expected to face trouble.

"The consequences for some financial institutions are still in front of us. We have to expect that there may be in the coming weeks and coming months other financial institutions with some problems," he told reporters.

The financial crisis would have repercussions for the global economy, that is already in a slowdown. But Strauss-Kahn saw resilience in developing countries, aided by falling oil prices. "What is important to see is that it has an influence on the real economy but that the real economy is resilient both in developed and emerging countries."

Part of restructuring

In a press statement, the IMF said that the events on Wall Street should be seen in the context of a financial sector restructuring and consolidation.

"This is a necessary condition for restoring the sector's effectiveness. At the same time, the speed and scale of these events have added to short term uncertainties and further significant financial strains cannot be ruled out. In this respect, we welcome the measures taken by central banks to help bolster available liquidity.

"We continue to anticipate a gradual global growth recovery in 2009, although the weekend's developments represent a potential added risk to the outlook. We at the Fund are in contact with our membership to help them assess the latest developments in international capital markets and manage the implications for their economies."

IMF projections indicate a decline in global growth to about 4 percent in 2008, reflecting the slowdown in the United States, Europe, and Japan and some deceleration of growth in most emerging market and developing countries.

"Fueled mainly by the jump in oil and food prices, inflation has risen to its highest levels in more than a decade in both developed and emerging countries. Fiscal, monetary, and exchange rate policies must respond adequately and expeditiously to the increasing inflation risks. Failure to do so could undermine medium-term growth and poverty reduction efforts," Strauss Kahn added.

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