The head of the International Monetary Fund (IMF) gave a gloomy report on Saturday on prospects for the world economy to a dozen leaders debating how to respond to global financial turmoil.
IMF managing director Dominique Strauss-Kahn told a high-powered forum hosted by British Prime Minister Gordon Brown that most of the downside risks to the world economy feared six months ago had now become reality.
”The forecasts we are going to release in a few days are not really improving,” Strauss-Kahn said.
The IMF is due to release its twice-yearly World Economic Outlook next week, just before the IMF’s spring meetings in Washington.
Earlier in the week, the IMF said it has cut its 2008 outlook for world economic growth for the second time this year — a move that acknowledged housing and credit problems in the United States were exacting a heavy toll on the global economy.
The IMF now expects global growth to slow to 3,7% this year, down from its January forecast of 4,1% and lower still from the 4,8% rate it predicted in October last year.
Brown has called together a dozen leaders from centre-left parties, including South African President Thabo Mbeki, Australian Prime Minister Kevin Rudd, Austrian Chancellor Alfred Gusenbauer and Ghana’s President John Kufuor, to discuss globalisation, climate change and reforms to global institutions at a conference outside London.
Also attending are the heads of the IMF, World Trade Organisation (WTO), the African Development Bank and several United Nations agencies.
Brown is using the forum to promote his ideas for the reform of global financial institutions to tackle the worldwide credit crunch sparked by the US subprime lending crisis.
Brown is pressing for global, rather than national supervision of financial markets, for banks to come clean on the losses they have suffered due to the subprime crisis and for a global early warning system to be set up to pre-empt new crises.
One bright spot among the discussions was talk of improving prospects for a breakthrough in the long-running talks on world trade liberalisation.
WTO chief Pascal Lamy said the Doha round of talks were ”inevitably long and complex”.
”My feeling is that we are now reaching a stage where it [an agreement] could happen,” he said.
Several leaders said rising food and energy prices posed a new economic challenge, particularly for poor countries.
Donald Kaberuka, president of the African Development Bank, warned that many African governments were straining their budgets by handing out food subsidies to help their populations cope with rising prices.
Summarising the discussions, Brown said there were worries about ”the combination of inflation and stagnation at the same time and the effects that would have on the world economy”.
Brown said there was general support among the leaders for ”moving further and faster on disclosure and transparency” in financial markets and on a new early warning system for the world economy. — Reuters