December 21, 1997 The Toronto Star
IMF warns money crisis will spread
Forecast shows global economic slowdown in
1998
WASHINGTON (CP) - The financial firestorm
raging through Asia will leave no country
untouched in 1998. Around the world,
economic growth will slow and unemployment
will rise, especially in nations at the
centre of the crisis.
That's the view of the International
Monetary Fund, which is releasing its most
extensive assessment so far of the
currency crisis that has forced the
lending agency to assemble
multibillion-dollar bailout packages for
Thailand, Indonesia and South Korea.
Because of the rapidly deteriorating
situation, the IMF yesterday updated its
World Economic Outlook, originally
released in October, with new economic
projections for 1998.
The IMF now projects the global economy in
1998 will grow at its slowest pace in five
years, an increase of just 3.5 per cent.
The forecast represents a 0.8
percentage-point reduction from two months
ago, when the IMF had projected worldwide
economic growth at 4.3 per cent.
The IMF said there is no reason to be
overly pessimistic and that ``the threat
to global growth from the present crisis
is reasonably limited.''
Still, it warned the risk of the Asian
trouble spreading to other countries had
grown and that there was no way of knowing
whether the world had yet seen the worst.
``The balance of risks is a little on the
downside,'' IMF chief economist Michael
Mussa said at a news conference to present
the report.
While noting that growth in North America
and Europe looked ``well sustained in the
period ahead,'' the IMF warned: ``A sharp
slowdown in economic growth is an
unavoidable consequence of the type of
crisis affecting a number of the Asian
economies.''
Admitting that it originally had misjudged
the extent of the turmoil, the IMF
appealed to troubled Asian nations to take
urgent measures to reform their fiscal
systems, keep monetary policy tight and
overhaul weak financial sectors.
The lending agency warned that a further
slowdown in the already sluggish Japanese
economy posed the ``key risk'' to advanced
economies elsewhere in the world.
In the gloomiest section of its report,
the IMF predicted the Japanese economy
would grow by only 1.1 per cent in 1998
compared with 1.0 per cent this year and
only half what had been forecast in
October.
Europe, less dependent on Asian export
markets, will see growth reduced just 0.1
percentage point from October's estimate
to 2.7 per cent.
Economic growth for Canada now is forecast
at 3.2 per cent compared with an estimated
3.7 per cent this year and off 0.3 of a
percentage point from the October
estimate.
For the United States, the IMF forecast
economic growth of 2.4 per cent next year,
down from an expected 3.8 per cent.
