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lquadland10 (< 20)

Just a note from the IMF home page.

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August 23, 2008 – Comments (1) | RELATED TICKERS: FIX

Slowing global growth

The update was released 11 days after the IMF published its latest forecast for the world economy—now clouded by the impact of high energy prices and anxieties about rising inflation.

The IMF expects global growth to slow significantly from 5 percent in 2007 to 4.1 percent in 2008 and 3.9 percent in 2009. Updated forecasts in the IMF's World Economic Outlook (WEO) also raised inflation projections, particularly for emerging markets and developing countries.

The IMF's market assessment said that as banks seek to deleverage and economize on capital, assets are being sold and lending conditions are tightening, which will result in slower credit growth in the United States and euro area.

With inflation risks on the rise, the scope for monetary policy to be supportive of financial stability has become more constrained. In the first quarter of 2008, total U.S. private sector borrowing growth fell to 5.2 percent—a level last seen after the 2001 recession. With continuing pressures on banks to deleverage, this growth might slow further.                         Growing U.S. problems

The report stressed the need to stem the decline in the U.S housing market to help both households and financial institutions to recover. "At the moment, a bottom for the housing market is not visible," the IMF report said.

House prices are softening in a number of other European economies, prompting concerns over future loan losses in the mortgage, construction, and commercial property areas.

House prices are softening in a number of other European economies, prompting concerns over future loan losses in the mortgage, construction, and commercial property areas.

Uncertainty about their future losses and capital needs have prompted a sharp decline in the share prices of the U.S. housing government-sponsored enterprises (GSEs). The wide investor base in GSE debt (both domestic and foreign) and the current reliance of U.S. mortgage lending on agency securitization meant that systemic consequences would have arisen if confidence in GSE debt had seriously come into question. The recently passed legislation will support the GSEs and create an independent regulator. "The policy challenge is now to find a clear and permanent solution." the report said.

1 Comments – Post Your Own

#1) On August 23, 2008 at 10:41 PM, lquadland10 (< 20) wrote:

E XECUTIVE S UMMARY
The 2008 Article IV consultation discussions with Jordan focused on the appropriate policy
response to mounting fiscal and external vulnerabilities and higher inflation.

Background

The economy continued to perform well in 2007, with 6 percent real GDP growth and lower
unemployment. However, sharply higher world fuel and food prices led to a marked widening
of the fiscal and external current account deficits and, more recently, a jump in inflation.
Economic prospects remain broadly favorable, though the public and external sector
imbalances imply increased challenges to sustaining strong macroeconomic performance.

Authorities' views

The authorities plan to lower the fiscal deficit in 2008, despite pressures to increase spending
following the removal of fuel subsidies. Although specific measures have not yet been
identified, they expect to reduce the deficit substantially more over the medium term, mainly
via lower expenditure growth. The exchange rate peg has anchored monetary policy and prevented an even larger
deterioration of the current account last year, when there was upward pressure on the dinar.
Interest rate differentials against the U.S. will be allowed to widen further to curb inflationary
pressures and credit growth. Structural reforms are proceeding, aimed at reducing distortions and enhancing the private
sector's growth prospects. Staff recommendations

The planned tightening of fiscal policy in 2008 will help narrow the fiscal and external
imbalances and bring inflation down. Significant further fiscal consolidation is needed over
the medium-term to reduce the still-high public debt and the large current account deficit.

The peg remains appropriate for Jordan. As long as short-term capital inflows remain limited,
there is scope to tighten monetary conditions to stem inflation.

Progress on the structural reform agenda is key to sustaining strong economic performance.
Priority areas include public financial management, the framework for public-private
partnerships, liberalization of the petroleum sector, developing the debt market, and
continued enhancement of financial sector supervision.

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