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The world economy, which grew by a hardy 4.9 percent last year, will lose considerable momentum to grow at 3.7 per cent in 2008 amid an unfolding crisis that began in the United States, the International Monetary Fund said in its semiannual World Economic Outlook (WEO) report. The United States, the epicenter of the turmoil, is poised to grow a paltry 0.5 per cent in 2008, the IMF said, despite a multibillion-dollar government stimulus package.
China and India led economic expansion in Asia, but growth in the region could be hit if the global financial crisis persists, the International Monetary Fund has said in its World Economic Outlook (WEO).
India, which grew by a blistering 9.2 percent last year, is expected to grow by 7.9 percent this year and 8 percent in 2009 next year. China, which had led growth at an astonishing 11.4 percent last year, will continue to lead growth, would see growth moderate to 9.3 per cent in 2008 and then strengthen to 9.5 per cent in 2009, down 0.7 point and 0.5 point, respectively.
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In 2009, the Indian economy will expand at slightly higher rate of 8%, according to the IMF's World Economic Outlook. The Outlook states that weak export demand and higher financing costs will dampen the growth of private investment, the key driver of growth. The impact of global financial turmoil following US sub-prime crisis, the cost of which is estimated at $1 trillion by the IMF, will be less in case of emerging economies in the East as compared to developed nations.
While the IMF is worried about the dangers of weakening global economic growth, it also expressed concern about the potential for inflation to heat up around the world, given sharp increases in energy and other commodity prices. ''Risks related to inflationary pressures have risen,'' the fund said.
Growth in consumer prices, which has been rising alarmingly in the recent past, in India is expected to moderate to 5.2% in 2008 and 4% in 2009. It was 6.4% in 2007. IMF growth projections for India are in line with other think tanks, including the Prime Minister's Economic Advisory Council that expected the economic growth rate to moderate to 8.5% during 2008-09 against projections of 8.7% for the previous fiscal.
'The IMF now sees a 25 percent chance that global growth will drop to 3 percent or less in 2008 and 2009 -- equivalent to a global recession'. ''The greatest risk comes from the still-unfolding events in financial markets, particularly the potential for deep losses'' on complex investments linked to the U.S. subprime mortgage market, the IMF said.
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