-Caveat Lector-
Begin forwarded message:
From: [EMAIL PROTECTED]
Date: April 10, 2007 11:24:05 AM PDT
To: [EMAIL PROTECTED]
Cc: [EMAIL PROTECTED], [EMAIL PROTECTED], [EMAIL PROTECTED]
Subject: IMF Says Risk of Recession is (a) Less, (b) Greater (c)
Who Knows?
IMF HEAD: WORLD ECONOMIC THREATS LESSEN
By Jeannine Aversa, AP Economics Writer
Associated Press, April 9, 2007, 11:14AM
http://www.chron.com/disp/story.mpl/ap/business/4698799.html
WASHINGTON — Threats to the global economy have lessened a bit in
recent months, but policymakers must remain on guard nonetheless,
the head of the International Monetary Fund said Monday
The remarks by IMF chief Rodrigo de Rato come as investors have
fretted about the severity of the housing slump in the United
States and its impact on the rest of the world.
"Where is the global economy now? I do not think that the risks are
greater than they were six months ago. Actually, I think they are a
little lower," de Rato said in a speech to the Peterson Institute
for International Economics.
Last week, an IMF report concluded that so far the economic
slowdown in the United States — the world's largest economy and
biggest importer — has had only a small effect on global economic
activity.
Even so, de Rato said global economic policymakers must remain
vigilant to potential dangers and not be lulled into a false sense
of security.
"Central banks around the world have established credibility in
taming inflation, and their task has been made easier over the last
six months by lower oil prices," de Rato said. "But the risk that
political events could disrupt the global economy remains."
So-called "global imbalances" — skewed trade and investment
patterns, which are a threat to the world's longer term economic
stability, continue, he said. And, an increased willingness by some
financial players to take risks "has produced some questionable
lending and borrowing," de Rato said.
"If political leaders don't think that global imbalances are
important, or are complacent about financial market developments,
it is more difficult to persuade them to take the actions needed to
sustain global prosperity," he warned.
De Rato predicted last month that global growth for all of this
year will clock in at close to 5 percent. De Rato said that would
be the strongest five-year span for the world economy since the
late 1960s.
Projections will be released this week ahead of the spring meetings
of the 185-nation IMF and the World Bank on April 14-15.
"Some of the risks are different, and there is greater
consciousness of the uncertainties and paradoxes that lie behind
our current prosperity," he said.
On another topic, the IMF chief said the lending institution is
moving ahead on plans to revamp itself to better respond to global
challenges and to ensure that member countries' voices are heard.
"The changes we need won't be easy," he said.
The IMF also is working on a plan on how it can beef up its
periodic economic reviews of countries, especially their exchange-
rate practices. "Another part of the strategy is to improve our
practice, for example, by deepening our analysis of exchange rates
and of spillovers between countries and markets," de Rato explained.
That's of keen interest to the United States, which has been
pressing China to let its currency go up in value. Critics contend
China is keeping its currency artificially low, thus hurting U.S.
exports and contributing to the loss of U.S. factory jobs. Besides
the United States, other major industrialized countries as well as
the IMF have said China needs to take more steps toward a flexible
currency policy.
"I want to underline again the limits to what we can do," de Rato
said. "The fund must persuade, it cannot dictate. The fund can
advise, but we cannot and should not dictate to our members on the
choice of their exchange-rate regimes, their intervention policies
or their exchange rate levels."
----------------
IMF WARNS: FINANCIAL MARKET RISKS HAVE INCREASED
By Lesley Wroughton
http://www.kplctv.com/Global/story.asp?S=6349764&nav=0nqx
WASHINGTON (Reuters) - The stability of the global financial system
is being bolstered by favorable economic conditions, but some
financial market risks have crept up in recent months, the
International Monetary Fund said on Tuesday.
"Global economic conditions have been supportive of a benign
financial environment, but underlying risks and conditions have
shifted somewhat since ... September 2006, and have the potential
to weaken financial stability," the IMF said in its semi-annual
Global Financial Stability Report.
Jaime Caruana, director of the IMF's monetary and capital markets
department, said overall economic risks had diminished worldwide,
but recent market corrections were a reminder that risks exist and
things could turn for the worse quickly.
"We think markets are going to be more focused on the outlook on
the economies, especially on the outlook of the U.S. economy, and
therefore they will focus on the news," Caruana told a news
conference.
Caruana cautioned that investors would be inclined to react to
financial data but that they may not be paying enough attention to
the downside risks and were assuming that low risk premia and low
volatility will remain.
The IMF pointed to potential risks from the rapid decline in the
U.S. subprime mortgage market, involving borrowers with poor credit
history. It said the decline was more rapid than expected at this
point in the overall housing downturn.
While the fallout in the subprime market has been limited to a
small number of lenders, the IMF warned that problems could spread
to other asset markets.
In particular, it said looser underwriting standards may have gone
beyond the subprime sector into portions of so-called "Alt-A"
mortgages, the next-riskiest area. In addition, there could be
losses in other consumer credit markets, including credit card and
subprime auto loan asset-backed securities, it said.
"Financial supervisors need to identify the potential for
spillovers from the cooling of the housing market and continue
ensuring that mortgage underwriting standards are maintained," the
IMF said.
WAVE OF BIG BUYOUTS
The fund also pointed to the potential risk from the recent wave of
corporate buyouts, which showed a weakening of credit discipline.
"So far, target firms are mostly those with high cash flows and low
leverage," the fund said. "However, there are signs that credit
risks have risen as valuations of target companies are rising along
with leverage, while credit discipline is eroding, reflecting the
continued weakening of loan covenants."
A collapse in one or more high-profile deals could expose banks and
trigger a wider reappraisal of risks, the IMF said.
Looking at regions, the IMF said available indicators point to
resilient financial systems in most areas.
In shifts in the financial system, the IMF said financial
globalization -- the purchase of cross-border financial assets --
had tripled, with increased investment in hedge funds.
"The increased diversity of investors should contribute to
financial stability, however, the speed that these changes are
taking place may temporarily distort prices in financial markets
and create pockets of vulnerabilities," the IMF said.
In some emerging market countries, demand has outpaced available
local financial assets, leading to a sharp rise in asset prices,
rapid credit growth and a rise in the value of currencies, the fund
said.
Creditors have also moved into investments in which they have
little experience and which are untested, it cautioned.
"The growing role of leveraged investors, such as hedge funds, may
have introduced a propensity for asset prices to overshoot during
good times, increasing the probability of downside risks when
financial conditions worsen," the IMF said.
-------------
IMF, OECD SEE SIGNS OF SLOWDOWN IN US ECONOMY
Daly Times, April 8, 2007
http://www.dailytimes.com.pk/default.asp?page=2007%5C04%5C08%
5Cstory_8-4-2007_pg5_43
BERLIN: The International Monetary Fund has revised down its
forecast for US economic growth by 0.4 percentage points, a German
newspaper reported in its online edition on Friday.
A report from the Organisation for Economic Cooperation and
Development also pointed to a slowdown in the world’s largest
economy, and signalled a weaker outlook for G7 economies as a whole.
The Financial Times Deutschland said it had seen a draft of the
IMF’s World Economic Outlook, to be published next Wednesday, which
said the US economy is likely to grow by about 2.2 percent this year.
The newspaper said the draft sees US growth picking up in 2008 to
about 2.8 percent, down from 3.0 percent given in the previous
figures.
Worries that the slowing US economy could slip into recession,
knocking activity in the rest of the world, have grown recently
after former Federal Reserve chief Alan Greenspan said in February
that a US recession was possible.
Expectations that this could force the Fed into an early cut in
interest rates have hit the dollar which traded near a two-year low
against the euro in Tokyo trading on Friday.
In a report released in Paris, the OECD said its composite leading
indicator (CLI) for the United States declined to 106.1 in February
from 106.4 the previous month.
“February 2007 data show weakening performance in the CLI’s six
month rate of change in most of the major seven economies (G7),”
the OECD said.
However, the CLI figure for the 30-nation OECD area came in at
109.5, unchanged from January.
Solid global growth: The FT Deutschland said IMF experts still
expect solid global growth to continue, forecasting the world
economy will grow about 4.9 percent in 2007, unchanged from draft
forecasts obtained by Reuters last month but down from 5.3 percent
in 2006.
It said the IMF now forecasts that Japan’s economic growth will
reach a high point of 2.3 percent in 2007. It is then set to slow
in 2008 to about 1.9 percent.
The report also forecasts a growth rate of about 1.8 percent for
Germany in 2007, which should rise to 1.9 percent in 2008,
according to the paper.
By contrast, economic experts from several German government
ministries see the economy growing by more than 2 percent in 2007
and 2008, according to a report in this week’s edition of German
magazine Der Spiegel.
According to a study published on Wednesday by one of the nation’s
leading think tanks, the Kiel-based Institute for the World Economy
(IfW), the German economy’s potential growth rate has risen to just
under 2 percent.
The IMF report estimates Germany’s budget deficit to be around 1.3
percent of gross domestic product this year.
-----------
IMF ACKNOWLEDGES OWN LIMITS ON ECONOMY
April 9, 2007 at 11:01 AM
http://www.upi.com/International_Intelligence/Briefing/2007/04/09/
imf_acknowledges_own_limits_on_economy/
WASHINGTON, April 9 (UPI) -- There is a limit to what the
International Monetary Fund can do to ensure global prosperity, the
IMF's head cautioned Monday.
In a speech at the Institute for International Economics, IMF
Managing Director Rodrigo de Rato argued that there are fewer risks
to the global economy now than there were six months ago, but there
is greater awareness of the uncertainties that continue to loom.
Rato also acknowledged that while hopes may be high for the IMF to
give sound policy advice to get economies worldwide back on track,
there are limits as to what the international agency could do in
bringing global economic stability.
"The Fund can advise, but we cannot and should not dictate to our
members on the choice of their exchange rate regimes, their
intervention policies, or their exchange rate levels. Indeed, in a
world of globalized financial markets, there are limits to what
countries can do to influence exchange rate levels," he said. "The
days when a group of finance ministers could sit in a hotel room
and decide currency values are over."
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