April 10, 2003
The global economy is struggling through another year of subpar growth, and officials at the International Monetary Fund believe policy-makers in the United States, Europe and Japan share part of the blame for the poor performance.
The IMF criticized Federal Reserve Chairman Alan Greenspan and his colleagues at the Federal Reserve along with the top officials of the central banks of Japan and Europe for failing to establish clear goals to fight the threat of falling prices, which has already gripped Japan and remains a threat because of weak growth in the United States and Europe. The IMF also challenged the centerpiece of the Bush administration's strategy for reviving the U.S. economy -- a new round of $726 billion in tax cuts. IMF chief economist Kenneth Rogoff on Wednesday those cuts were ``awkwardly timed'' given that they would add to a budget deficit already rising sharply because of the cost of the war in Iraq.
The Bush administration says the tax cuts will give the U.S. economy and the world economy a badly needed boost and the faster growth will help lower U.S. budget deficits in future years. That view was likely to be challenged in meetings of finance officials of the world's seven wealthiest countries -- the United States, Japan, Germany, France, Britain, Italy and Canada -- that are to start with a dinner Friday night.
Those discussions are a prelude to the spring meetings of the 184-nation IMF and its sister lending agency, the World Bank, on Saturday and Sunday. The administration is hoping to use the gathering of finance ministers to begin seeking contributions from other countries for what is expected to be a multibillion-dollar effort to rebuild Iraq. World Bank President James Wolfensohn and IMF Managing Director Horst Koehler were expected to address how their agencies will participate in reconstruction efforts during news conferences Thursday previewing the meetings.
Like several recent IMF-World Bank meetings, this week's were expected to attract demonstrators calling for changes in world economic policies including debt relief for poor countries. The demonstrations, however, were expected to be smaller than in the past. The IMF, issuing its latest ``World Economic Outlook'' on Wednesday, trimmed its expectations for global growth to 3.2 percent for this year from a 3.7 percent IMF forecast in September. Much of the markdown was due to a temporary jump in world oil prices over worries about supply disruptions. ``For the past three months, concerns over conflict in the Middle East have weighed heavily on the global economy, through oil prices, through confidence effects and through financial markets,'' Rogoff told reporters.
The IMF warned that even the reduced forecast might not be realized because of the failure of economic policy-makers to address such problems as rising budget and trade deficits in the United States to massive bad loans overhanging Japanese banks and rigid labor markets in Europe that drive up employment costs.
Rogoff said the new IMF forecast had assumed the war would be over quickly, but he said the other factors holding back growth would result in only a ``tepid global recovery'' this year followed by more normal growth of 4.1 percent in 2004. Rogoff said the optimism for 2004 could be misplaced because of several other risks, including the lingering effects from the bursting of the stock market bubble to the threat that a new bubble is developing in U.S. housing prices and fears about a deadly new Asian virus. ``In our view, it is not just the war -- a number of other risks weigh on the outlook,'' Rogoff said.
The IMF predicted that the United States, which recorded weak growth of 2.4 percent last year after emerging from the 2001 recession, will see growth slip a bit to 2.2 percent this year, a rate not strong enough to keep unemployment from rising further. For 2004, the IMF predicted the United States would grow at a stronger 3.6 percent pace. The outlook for the world's other major economies was even more subdued. The IMF forecast a lackluster 1.1 percent growth in the 12-nation euro area and an anemic 0.8 percent growth rate this year in Japan.
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