IMF Lowers Its Forecast on World Economic Growth

The International Monetary Fund on Monday lowered its world economic growth forecast for the second time in four months, but said Asia’s financial crisis could soon come to an end.

The IMF’s World Economic Outlook report, a summary of the economic prospects of IMF member states, said world growth would slow to 3.1% this year from 4.1% in 1997, including a “hard-to-achieve” zero-growth rate in Japan.

But the IMF said the worst could be over elsewhere in Asia, where once-booming economies are tumbling into recession as they seek to restructure their financial systems and open their markets to the outside world.

“We do anticipate that the crisis elsewhere in Asia will reach its peak this year and that probably by late this year most of those economies will begin their recovery,” Michael Mussa, IMF chief economist, told a news conference. “The bounce back could be fairly rapid after a very steep decline.”

The latest IMF world growth forecast was well below a 3.5% projection released just four months ago, and a 4.3% projection published last October. The fund said growth could rebound to 3.7% next year.

The IMF lowered its 1998 growth forecast for Japan to zero, although Mussa made it clear the reality could be still lower.

The IMF expects the U.S. economy, which represents about a quarter of world output, to grow by 2.9% in 1998, and the European Union to grow by 2.8%. For the U.S., it would be a slowdown from last year’s growth rate of 3.8%. For the 15 EU nations, however, it would be faster than last year’s 2.6%.

“The impact of the Asian crisis on growth prospects for the major industrial countries--with the important exception of Japan--is expected to be modest,” the IMF said in its report.

For this year, the IMF projected a 5% decline in economic output in Indonesia, a 3.1% fall in Thai output and a decline of just 0.8% in South Korea.

In Indonesia on Monday, President Suharto said that wide-ranging economic reforms announced last week will be fully implemented.

Seeking to win over skeptics who say they will reserve judgment until they see proof of action, Suharto said at a ceremony for civil servants: “Basically, the economic and financial reform policy has been completed and it will be implemented consistently.”

Indonesia on Friday announced a comprehensive 117-point reform package agreed on with the IMF to end the country’s economic crisis.

The package has been generally welcomed, but analysts have said the key will be implementation, especially because Jakarta has been seen as backsliding on two previous agreements with the IMF.