IMF says downside risks to world economy have materialised

Watford, England: Most of the downside risks to the world economy identified six months ago have now materialised, the head of the International Monetary Fund (IMF) said on Saturday.

"The forecasts we are going to release in a few days are not really improving and most of the downside risks identified six months ago have materialised," IMF chief Dominique Strauss-Kahn told a conference hosted by British Prime Minister Gordon Brown.

"So it means the global forecast for the global economy is around 3.7 per cent for next year which is one of the lowest in the last two decades," he said.

Although he spoke of "next year", Strauss-Kahn appeared to be referring to 2008 economic growth.

The IMF's twice-yearly World Economic Outlook is due to be released on Wednesday.

The IMF said on Thursday it had cut its 2008 outlook for world economic growth for the second time this year, in a move that acknowledged housing and credit problems in the US were exacting a heavy toll on the global economy.

The IMF said it expects the pace of global growth to slow to 3.7 per cent this year, down from its January forecast of 4.1 per cent and lower still from the 4.8 per cent rate it predicted in October last year.

'Rapid spillover'

The slower pace of economic growth came from "ongoing slowing down in the US" and was also due to the "somewhat rapid spillover from the US to European countries", he said.

"The so-called decoupling theory appears to be misleading. In fact, emerging economies including China, India and Brazil suffer from slowdown from the rest of the world, even if they stay at high levels of growth," he said.

Until confidence between financial institutions returned, there would be no solution, he said.