Views from the IMF

Finance ministers representing 185 nations attended meetings of the International Monetary Fund (IMF) and World Bank in Washington, DC, this weekend. Overall, they believe the global economy is looking pretty good these days. But they also caution that potential risks could alter the rosy outlook.

On the plus side:
· Growth is becoming regionally more balanced.
· Economies in emerging and developing countries are strengthening.
· Doha Round trade negotiations are resuming.
· Efforts are continuing to reduce trade imbalances.

Potential risks:
· A sharper-than-expected slowdown in the U.S. economy.
· Strains on healthcare and pension systems as elderly populations increase.
· Renewed inflationary pressures resulting from higher prices for oil or closure of output gaps.
· Trade protectionism.
· Financial market instability.

The U.S. economy is expected to grow a mere 2.2% this year (vs. 3.3% in 2006), compared with a 4.9% global economic growth forecast for 2007 and 2008 (down 0.5% from 2006). A slowdown in the housing market is largely blamed for the lower U.S. growth rate (and for increased downtime, closures, and lost jobs within the forest products industries). Ripple effects associated with credit risks and U.S. subprime mortgage markets may yet be felt.

Along with various communiqués, the IMF issued two reports of note this month that provide more detailed analyses worth reviewing. One is the "Global Financial Stability Report – Market Developments and Issues," available at www.imf.org/external/pubs/ft/gfsr/2007/01/index.htm. The other is "World Economic Outlook – Spillovers and Cycles in the Global Economy," available at www.imf.org/external/pubs/ft/weo/2007/01/pdf/text.pdf.