Global economy to grow despite oil prices: IMF

22 September 2005

Washington DC, USA: The IMF's World Economic Outlook says that the world economy is set to grow 4.3 per cent this year and also the next, which is above the 3.9 per cent average of the past decade. The rise in performance will come despite higher oil prices and a battering from Hurricane Katrina, the IMF revealed today.

In its twice-annual World Economic Outlook, the International Monetary Fund downgraded its forecast for global growth in 2006 from the 4.4 per cent expected in April but retained this year's projection.

"The world economy has proved tremendously resilient over the last few years," IMF chief economist Raghuram Rajan said. "Disease, natural disasters and soaring oil prices have only caused minor blips in an overall picture of healthy growth," he said. Still, it warned that risks were rising, fuelled by a lack of government savings, widening current account imbalances, growth distortions among regions and higher oil prices.

Crude oil prices hit record levels above $70 a barrel last month, more than double the levels at the start of last year. Rajan said there were no signs that oil-market speculators were driving prices higher. Instead, they seemed to be chasing them. He said there was a chance that higher oil prices could trigger broad inflation and push interest rates up. Rajan also told a German paper, that there was a likelihood of a price of around $80 a barrel.

The IMF has also pared its 2005 forecast for the world's largest economy, the United States, to 3.5 per cent from 3.6 per cent it envisioned in April due to the impact from Katrina and lower consumer confidence from rising inflation cutting into nominal wages, and rising interest rates slowing house price growth. It also trimmed the US outlook for 2006 to 3.3 per cent from 3.6 per cent.

It has also criticised Washington's "unambitious" plan to cut the US budget gap in half by the time President George W. Bush leaves office in early 2009. The US budget deficit hit a record $412 billion ($541.32 billion) last year.