U.S., global growth to top IMF meeting agenda

By Mark Egan

WASHINGTON (Reuters): A slowing global economy and the possibility of a U.S. recession will take center stage at the IMF's spring meeting next week, just months after the lender said the economic outlook was the best in a decade.

Much has changed in a year. Last April thousands of protesters besieged the International Monetary Fund and World Bank meetings here. Police erected barricades to protect the suited bankers and frequently clashed with protesters, who blamed the world's myriad woes on the IMF and World Bank.

But this year, pepper spray and protests are likely to play a much smaller role since it is a trade summit in Quebec this week which has piqued protesters' interest.

And the economic outlook, the primary focus of the IMF's meetings, was also different back then. Prospects were so good that in August the IMF's new Managing Director Horst Koehler proclaimed, "The outlook for the world economy is the best we have seen in over a decade."

That optimism has given way to gloom. The world's richest economy is slowing faster than anyone had expected and Japan is languishing in the doldrums, showing no signs of emerging from a decade-long economic malaise. Europe's economy is growing faster than that of the United States for the first time in a decade, but that statistic says more about America's problems that Europe's growth.

And while the consensus is still calling for a quick U.S. rebound, most economists fear that if American stock prices continue to tumble, then recession could be on the cards.

"The current slowdown of growth in the world economy and the policy measures necessary to address it will be the primary focus of the (IMF meetings)," the latest issue of the IMF Survey publication said.

The meetings start in earnest on April 26 with the publication of the World Economic Outlook, the IMF's biannual look at global economic prospects.

The WEO is expected to forecast U.S. growth will slow to 1.5 percent or less this year, much lower than the 3.2 percent growth the IMF forecast when it last published the WEO in September, sources inside the fund told Reuters.

But the WEO will also predict that U.S. growth will rebound in 2002. The outlook for global growth is expected to be about 3 percent this year before improving next year.

But, as the IMF's Chief Economist Michael Mussa and his World Bank counterpart Nicholas Stern have both said, the economic outlook is darkening by the day.

"We expect growth to resume at a more rapid pace in 2002, but each day as the stock market declines that prospect seems to erode a little bit," Mussa, responsible for IMF research and forecasts, said of his predictions recently.

And Stern, forecasting growth of just 1.2 percent in the United States this year, said of his forecast that, "The risks ... are substantial."

At the Davos economic forum in January, the U.S. Federal Reserve was urged to cut interest rates further to help prop up the main engine of world growth. Since then, the U.S. central bank has done just that, taking interest rates two percentage points lower compared to the start of the year.

Indeed, heightened concerns about a possible U.S. recession caused the Fed to slash interest rates once again by half a percentage point on Wednesday. The rate cut decision was made between the central bank's regularly scheduled policy-setting meetings, as it was in the beginning of January.

With the global economy in need of a boost from somewhere, all eyes at the upcoming meeting will likely look to Europe to breathe some life back into global growth prospects.

Sources inside the IMF say Koehler is furious that the European Central Bank has yet to cut interest rates despite the fund chief's public urging and that he will make some pointed comments at the meeting.

Koehler will also flesh out his plans for a new capital markets department at the IMF, which he hopes will help the fund spot trouble spots earlier.

During the Asian financial crisis of 1997-1999, which hurt economies as far afield as Thailand, Brazil and Russia, the IMF was blamed for doing too little too late to stem the problems. While much IMF reform has taken place since, improvements will be discussed at the meeting, including the still unresolved issue of what role private banks should play in bailouts.

Argentina and Turkey, which have both been embroiled in crises in recent months, will also garner some attention.

But most inside the IMF are pleased that because of improvements made since the Asian crisis, recent problems in Argentina and Turkey did not threaten the broader global financial system.

And since emerging economies are in sounder shape than before, the slowdown in the United States and Japan does not have to spell disaster elsewhere, the IMF contends.

Nevertheless, those at the meeting will be keen to formulate an action plan to ensure a rebound of growth in 2002 so the improvements made in emerging markets after the Asian debacle are not put too sorely to the test.