by Frank James
There’s some thinking that the U.S. economy might be able to weather the current economic downturn thanks to exports. Maybe. But the International Monetary Fund has a report out today that makes it appear that exports may not be able to significantly prop up the U.S. economy.
In its report on the global economic outlook, the IMF indicates that the crash in the U.S. housing market, as well as the meltdown of credit markets, will put the brakes on the world economy’s growth.
Indeed, the fund’s economists say there’s a one in four chance of a world recession in the 2008-2009 time period.
In a press release on the report, the IMF said:
Global growth will decelerate in 2008, led by a sharp slowdown in the United States, amid a housing correction and a financial crisis that has quickly spread from the U.S. subprime sector to core parts of the financial system, the IMF says in its latest World Economic Outlook.
Citing the unfolding financial market turmoil as the biggest downside risk to the global economy, the April 2008 report said the IMF expects world growth to slow to 3.7 percent in 2008—0.5 percentage point lower than what was forecast in the January 2008 World Economic Outlook Update.
Further, world growth would achieve little pickup in 2009, and there is a 25 percent chance that the global economy will record 3 percent or less growth in 2008 and 2009, equivalent to a global recession. Here’s a table from the IMF release. Among advanced economies, only Italy will have worse growth than the U.S. Canada is the U.S. largest trading partner, followed by China, Mexico, Japan and Germany. Mexico isn’t on the table but the IMF predicts it will come in at 2.0 for 2008 and 2.3 for 2009.
For the U.S. economy near-term, there was little good news from Simon Johnson, the IMFs chief economist.
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Blaming the twin forces of deteriorating financial market conditions and the continuing correction in the U.S. housing market, the IMF predicts that the United States will slip into a “mild recession” in 2008, from which it will recover only modestly in 2009. This reflects the time it takes for financial institutions and households to resolve their balance sheet problems.
“Against the backdrop of weak financial market confidence, we expect consumption to remain weak in the coming quarters due to deteriorating labor market conditions, sluggish growth in disposable incomes, higher energy costs, and tighter constraints on household borrowing,” Johnson said.
“Notwithstanding aggressive easing by the Federal Reserve and a timely fiscal stimulus package, signficant strains in housing and credit markets are likely to be protracted,” he added. The IMF estimates that, from 2007 until end-2008, house prices in the United States would have fallen by about 14-20 percent