MF warns of $80 oil by Christmas
Independent Online Edition > Business News : app5
By Philip Thornton
Published: 22 September 2005
The world economy could be plunged into recession by soaring oil prices or a sudden collapse in the dollar, the International Monetary Fund warned yesterday.
The world's financial watchdog said there was a one in five chance that crude prices could hit $80 a barrel by Christmas - surpassing, in real terms, the prices witnessed during the 1970s oil crisis. The IMF toughened up its language on the danger posed by the imbalances between the economies of the West and the powerhouse regions of Asia and China, unusually using the world "recession" in its key forecast document.
The IMF stuck to its forecast for near-record global growth of 4.3 per cent and described the expansion as "broadly on track". Raghuram Rajan, the head of the IMF's research department said: "Oil is a clear and present danger. Oil price increases are unlikely to be benign going forward and are already affecting emerging markets and developing countries."
The IMF echoed the US Federal Reserve, which raised interest rates on Tuesday, in saying that Hurricane Katrina would take just 0.1 percentage points off US GDP. He warned that while the world had been resilient through recent shocks, this had been a result of booms in consumer spending and house prices, thanks to loose monetary policy which had added to the imbalances between the West and Asia. It said the main risk came from the high level of the US dollar and the excessive dependence on the US economy on consumers buying cheap goods made in Asia.
"A sharp decline in the demand for US assets, combined with rising protectionist pressures, could well lead to a global recession," the report said.
The IMF cut its growth forecasts for the euro area this year to 1.2 per cent from April's 1.6 per cent. It said Italy would post no growth this year compared with the 1.2 per cent it forecast six months ago. Mr Rajan said: "Weak domestic demand continues to be the main problem in the euro area. Europe's citizens don't seem convinced the bitter medicine of continued structural reforms will cure the stasis that afflicts the Continent."
The downgrade contrasted with China, whose growth forecast for this year was revised up to 9 from 8.5 per cent. The IMF also raised its forecast for India to 7.1 from 6.6 per cent.
The world economy could be plunged into recession by soaring oil prices or a sudden collapse in the dollar, the International Monetary Fund warned yesterday.
The world's financial watchdog said there was a one in five chance that crude prices could hit $80 a barrel by Christmas - surpassing, in real terms, the prices witnessed during the 1970s oil crisis. The IMF toughened up its language on the danger posed by the imbalances between the economies of the West and the powerhouse regions of Asia and China, unusually using the world "recession" in its key forecast document.
The IMF stuck to its forecast for near-record global growth of 4.3 per cent and described the expansion as "broadly on track". Raghuram Rajan, the head of the IMF's research department said: "Oil is a clear and present danger. Oil price increases are unlikely to be benign going forward and are already affecting emerging markets and developing countries."
The IMF echoed the US Federal Reserve, which raised interest rates on Tuesday, in saying that Hurricane Katrina would take just 0.1 percentage points off US GDP. He warned that while the world had been resilient through recent shocks, this had been a result of booms in consumer spending and house prices, thanks to loose monetary policy which had added to the imbalances between the West and Asia. It said the main risk came from the high level of the US dollar and the excessive dependence on the US economy on consumers buying cheap goods made in Asia.
"A sharp decline in the demand for US assets, combined with rising protectionist pressures, could well lead to a global recession," the report said.
The IMF cut its growth forecasts for the euro area this year to 1.2 per cent from April's 1.6 per cent. It said Italy would post no growth this year compared with the 1.2 per cent it forecast six months ago. Mr Rajan said: "Weak domestic demand continues to be the main problem in the euro area. Europe's citizens don't seem convinced the bitter medicine of continued structural reforms will cure the stasis that afflicts the Continent."
The downgrade contrasted with China, whose growth forecast for this year was revised up to 9 from 8.5 per cent. The IMF also raised its forecast for India to 7.1 from 6.6 per cent.
By Philip Thornton
Published: 22 September 2005
The world economy could be plunged into recession by soaring oil prices or a sudden collapse in the dollar, the International Monetary Fund warned yesterday.
The world's financial watchdog said there was a one in five chance that crude prices could hit $80 a barrel by Christmas - surpassing, in real terms, the prices witnessed during the 1970s oil crisis. The IMF toughened up its language on the danger posed by the imbalances between the economies of the West and the powerhouse regions of Asia and China, unusually using the world "recession" in its key forecast document.
The IMF stuck to its forecast for near-record global growth of 4.3 per cent and described the expansion as "broadly on track". Raghuram Rajan, the head of the IMF's research department said: "Oil is a clear and present danger. Oil price increases are unlikely to be benign going forward and are already affecting emerging markets and developing countries."
The IMF echoed the US Federal Reserve, which raised interest rates on Tuesday, in saying that Hurricane Katrina would take just 0.1 percentage points off US GDP. He warned that while the world had been resilient through recent shocks, this had been a result of booms in consumer spending and house prices, thanks to loose monetary policy which had added to the imbalances between the West and Asia. It said the main risk came from the high level of the US dollar and the excessive dependence on the US economy on consumers buying cheap goods made in Asia.
"A sharp decline in the demand for US assets, combined with rising protectionist pressures, could well lead to a global recession," the report said.
The IMF cut its growth forecasts for the euro area this year to 1.2 per cent from April's 1.6 per cent. It said Italy would post no growth this year compared with the 1.2 per cent it forecast six months ago. Mr Rajan said: "Weak domestic demand continues to be the main problem in the euro area. Europe's citizens don't seem convinced the bitter medicine of continued structural reforms will cure the stasis that afflicts the Continent."
The downgrade contrasted with China, whose growth forecast for this year was revised up to 9 from 8.5 per cent. The IMF also raised its forecast for India to 7.1 from 6.6 per cent.
The world economy could be plunged into recession by soaring oil prices or a sudden collapse in the dollar, the International Monetary Fund warned yesterday.
The world's financial watchdog said there was a one in five chance that crude prices could hit $80 a barrel by Christmas - surpassing, in real terms, the prices witnessed during the 1970s oil crisis. The IMF toughened up its language on the danger posed by the imbalances between the economies of the West and the powerhouse regions of Asia and China, unusually using the world "recession" in its key forecast document.
The IMF stuck to its forecast for near-record global growth of 4.3 per cent and described the expansion as "broadly on track". Raghuram Rajan, the head of the IMF's research department said: "Oil is a clear and present danger. Oil price increases are unlikely to be benign going forward and are already affecting emerging markets and developing countries."
The IMF echoed the US Federal Reserve, which raised interest rates on Tuesday, in saying that Hurricane Katrina would take just 0.1 percentage points off US GDP. He warned that while the world had been resilient through recent shocks, this had been a result of booms in consumer spending and house prices, thanks to loose monetary policy which had added to the imbalances between the West and Asia. It said the main risk came from the high level of the US dollar and the excessive dependence on the US economy on consumers buying cheap goods made in Asia.
"A sharp decline in the demand for US assets, combined with rising protectionist pressures, could well lead to a global recession," the report said.
The IMF cut its growth forecasts for the euro area this year to 1.2 per cent from April's 1.6 per cent. It said Italy would post no growth this year compared with the 1.2 per cent it forecast six months ago. Mr Rajan said: "Weak domestic demand continues to be the main problem in the euro area. Europe's citizens don't seem convinced the bitter medicine of continued structural reforms will cure the stasis that afflicts the Continent."
The downgrade contrasted with China, whose growth forecast for this year was revised up to 9 from 8.5 per cent. The IMF also raised its forecast for India to 7.1 from 6.6 per cent.
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