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World Economic Growth to Hold Steady Despite Hurricane Damage


The International Monetary Fund says despite recent natural disasters in oil producing areas of the United States, world economic growth is likely to hold steady at over four percent this year and next.

In its semi-annual forecast, the IMF says the U.S. economy is likely to bounce back quickly from Hurricane Katrina, which struck the U.S. Gulf coast at the end of August. The IMF says U.S. economic growth will hold steady at 3.5 percent this year and 3.3 percent in 2006.

But IMF chief economist Raghuram Rajan says the risk to global growth is slanted to the downside, because of the rising price of oil. The IMF is predicting that oil prices will average $54 dollars a barrel this year and $62 in 2006. Those are sharp upward revisions from estimates of six months earlier. Oil prices have doubled over the past two years.

Mr. Rajan also calls attention to the risk of global imbalances - large trade surpluses in China and other parts of East Asia and a large deficit in the United States.

"If these imbalances build up, we get all kinds of protectionist sentiments cropping in countries, where countries point fingers at each other," said Raghuram Rajan. "Then you get protectionist pressures to raise tariffs and so on, which will make everything much worse."

Mr. Rajan says an associated risk is the possibility that creditor nations at some point will no longer finance the U.S. trade deficit and that could lead to a significant drop in the exchange value of the dollar.

The IMF says China's economy continues to outpace all others, growing at a nine percent rate this year. India is also doing well, growing at seven percent while Russia, a major oil producer, is growing at 5.5 percent.

Europe continues to be weak with 2005 euro zone growth revised downwards to 1.2 percent. Sub-Saharan Africa is growing by 4.8 percent and developing countries in the western hemisphere by 4.1 percent.

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