IMF: Global Outlook Unchanged By Market Turbulence

Global market turbulence in the wake of rising risk aversion requires close monitoring, but there is no need yet to rethink the broadly positive outlook for the world economy, according to the IMF.

However, Lipsky said the turbulence and high energy prices have shifted the risks to growth to the downside, without affecting expectations that there will be some further monetary tightening. "Our broad judgment is that the latest market volatility plus other changes, such as the changes to energy prices, have not made substantial changes in our outlook," Lipsky told reporters at a meeting of Asia Pacific Economic Cooperation finance ministers. The IMF recently forecast that the world economy would grow 5.2% in 2007 and maintain a similar pace through 2008. It also forecast positive but moderate growth for the U.S. economy, and said that Asia would contribute the strongest regional growth. "Even though our broad outlook remains a very favorable one, we are not trying to say that there is no problem....We do perceive that the risks to the (world) economy are on the downside. The increase in financial volatility and the increase in energy prices have added to the risk," he said. Despite the rising risks, the IMF continues to expect a trend toward higher interest rates in many countries. "In some economies, further monetary policy tightening may be needed, basically in response to the combination of solid growth and the narrowing of output gaps...and rising prices for energy, commodities and food," he said. Lipsky added that the blowout in credit spreads due to heightened risk aversion in recent weeks was not excessive. "When you take a step back it doesn't actually appear to be so out of line with developments. Looking across the full spectrum of instruments, including emerging market debt, it seems that the realignment of risk in relative terms is not necessarily unsettling," he said. But private equity firms could face challenging times. "Deals that make sense will probably get done, but it seems for now that deal flow is going to be very difficult," Lipsky said.