IMF Says Global Recession Possible
By Martin Crutsinger
AP Economics Writer
Wednesday, September 30, 1998; 5:47 p.m. EDT
WASHINGTON (AP) -- Worldwide economic turmoil has
cost millions of jobs and more than $600 billion in output
-- the equivalent of a country the size of Canada shutting
down for a year, the International Monetary Fund said
Wednesday. The agency also warned that global recession
can't be ruled out, especially if the U.S. economy weakens
more than expected.
In a sobering assessment, the IMF slashed its economic
forecast, predicting the global economy will slow to a 2
percent growth rate this year, the poorest showing in
seven years. The world's economy will only slightly rebound
to 2.5 percent growth in 1999, it said.
Investor jitters about what a deteriorating world economic
situation will do to U.S. corporate profits sent stocks
plunging on Wall Street on Wednesday.
The Dow Jones industrial average plunged 237.90 points,
the eighth-largest point drop in history, as investors
expressed fears that a quarter-point rate cut by the
Federal Reserve will not be enough to stabilize a choatic
global economy.
The IMF's growth projections for both 1998 and 1999
were a full percentage point below estimates the agency
made just five months ago.
And even that marked-down forecast may not come to
pass, the IMF warned, given the spreading financial
turmoil that began 14 months ago in Asia, leveled the
Russian economy last month and is now threatening Latin
American countries.
``International economic and financial conditions have
deteriorated considerably in recent months,'' the
182-nation international lending agency said in its ``World
Economic Outlook.''
Employing unusually blunt language for an agency that
normally searches for a silver lining to any economic cloud,
the IMF warned: ``Chances of any significant improvement
in 1999 have also diminished and the risks of a deeper,
wider and more prolonged downturn have escalated.''
Just a year ago, the IMF forecast that the global economy
would expand by 4.3 percent this year, right in line with
the long-term growth trend over the past 25 years. But at
that time the Asian crisis had not spread from Thailand.
The IMF, which has assembled more than $100 billion in
bailout packages for Thailand, Indonesia, South Korea and
Russia, has been forced to steadily downgrade its
economic forecasts as the crisis has intensified.
The human cost already has been significant: Millions of
people have been thrown out of work in the hardest hit
countries of Asia, where economies have plunged to
depression-like levels.
The lost world output for just 1998 would be between
$600 billion to $800 billion, equivalent to the loss of the
entire economy of Canada for a year, the IMF said.
The situation in Asia has become so serious that it
threatens to unravel decades of economic gains by tens of
millions of people in the region, the World Bank said
earlier this week.
In the United States, the biggest impact has been an
escalating trade deficit as American factories and
farmers have seen their foreign markets dry up. The
broadest measure of U.S. trade will surge from a deficit of
$155 billion last year to $236 billion this year, the IMF
said, and to $299 billion in 1999, a level it called
unsustainable.
The agency forecast that U.S. economic growth will slow
only slightly to 3.5 percent this year, but will drop to just
2 percent in 1999 as lost exports and rising imports eat
further into U.S. growth.
Because of this slowdown, IMF chief economist Michael
Mussa said it was appropriate that the Federal Reserve
cut a key interest rate by a quarter-point on Tuesday, an
action widely viewed as a pre-emptive strike against a
possible U.S. recession.
The chance that the United States could slow more than
expected, that Japan could fail to deal with its worst
recession in 50 years and that skittish investors will
permanently flee Latin America and other emerging
markets are the biggest threats raising the possibility the
current slowdown could deepen into a global recession.
``It is a risk which policy-makers around the world need to
be concerned about,'' Mussa said.
The IMF holds its annual meetings next week, after
Saturday discussions among finance ministers and central
bank presidents of the world's seven largest economies.
The United States has been working behind the scenes
with the IMF and major allies to assemble a bailout
package for Brazil. The U.S. fears that if Latin America's
largest economy falls victim to investor flight, that could
trigger more failures in Latin America, a region that buys
nearly 20 percent of U.S. companies' exports.
The IMF said all the turmoil will result in a plunge in the
flow of private capital to emerging market countries this
year to the lowest level since 1990.
Japanese Finance Minister Kiichi Miyazawa told reporters
in Tokyo that he will bring a proposal to provide $30 billion
in support for Asian countries when he meets this
weekend with other G-7 finance leaders.
© Copyright 1998 The Associated Press
