Weakest world economic growth since '93 expected

By Martin Crutsinger
Associated Press

WASHINGTON — The Sept. 11 terrorist attacks dealt a major blow to a global economy that was already under severe strain and will result in the weakest economic performance in nearly a decade, the International Monetary Fund said yesterday.

The 183-nation lending agency projected global growth of 2.4 percent for this year and next, down sharply from the 4.7 percent pace recorded in 2000.

The United States, which entered its first recession in a decade last March, will grow by just 1 percent this year and an even weaker 0.7 percent in 2002, the IMF forecast.

The new projections were included in a special edition of its "World Economic Outlook," which the IMF released to update a forecast made in October which did not take into account the Sept. 11 attacks.

Because of those attacks, "prospects for global recovery have been set back significantly," the IMF said in the new report.

The IMF predicted that the world economy will see the most marked simultaneous slowdown in two decades, with all major economies from the United States and Europe to Japan struggling to emerge from a pronounced slowdown.

The new forecast for global growth would be the weakest performance since a 2.3 percent growth rate in 1993.

"The tragic events of Sept. 11 exacerbated an already very difficult situation in the global economy," the IMF said. "As a result, prospects for global recovery have been set back significantly."

Briefing reporters on the new forecast, IMF chief economist Kenneth Rogoff said the IMF still expects a significant rebound in activity by 2003 but he warned that the outlook was unusually cloudy, given all the uncertainties stemming from the unprecedented nature of the Sept. 11 attacks.

"We can imagine a worse outcome than our base forecast," he said.

Among the threats to its forecast, the IMF cited the possibility that consumer confidence will return more slowly in the United States because of lingering fears of new terrorist attacks.

In October, the IMF had projected that the U.S. economy would grow by 2.2 percent next year. The new forecast cuts that estimate by 1.5 percentage point.

The global output was put at 3.5 percent in October, now reduced by 1.1 percentage point to 2.4 percent.

Many private forecasters say the U.S. downturn will be relatively mild and will be over by March.

The IMF also expressed optimism that a U.S. recovery will begin next year, propelled by aggressive credit easing by the Federal Reserve and economic stimulus provided by Congress.

The IMF's updated economic projections, while sharply lower than its October forecast, were very close to revised estimates IMF Managing Director Horst Koehler had released last month.

The IMF forecast that the Japanese economy, the world's second-largest, would shrink by 0.4 percent this year and 1.0 percent next year and it urged the Japanese central bank to take additional steps to combat a serious bout of deflation.

For the 15-nation European Union, the IMF forecast growth of 1.7 percent this year and 1.3 percent next year. Germany, the biggest economy in Europe, was projected to grow by just 0.5 percent this year and 0.7 percent next year.

For developing nations, the IMF projected growth of 4.0 percent this year and 4.4 percent next year, led by strong growth of 7.3 percent in China this year and 6.8 percent next year.