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World Economic Growth Decelerating From Pace Predicted Six Months Ago


Because of the global impact of the credit contraction that started in the United States last August, world economic growth is likely to have slowed to no more than a four percent pace for this year. VOA's Barry Wood reports that the deceleration cuts growth by nearly one percent from last year.

Washington's Peterson Institute believes world economic growth has slowed to a 3.8 percent pace, its slowest pace for five years. The International Monetary Fund will release its forecast on April 9, but it too is likely to be significantly marked down.

Growth remains strongest in Asia, with China still growing at a 10 percent pace and India eight percent. Europe is likely growing at a 1.6 percent rate while United States growth is currently flat and may be negative. Peterson Institute forecaster Michael Mussa says if the US economy is in recession, it will likely be shallow and short. US growth, he says, will pick up later this year.

"It is reasonable to expect a rebound to moderate growth in the two to three percent range in the second half," said Michael Mussa. "With real gdp falling moderately in the first half and rebounding moderately in the second half, fourth quarter to fourth quarter growth should be a meager one half of one percent."

Mussa, who for 10 years was the chief economist at the IMF, says the US economy needs a mild recession to cool the inflationary pressures of sharp increases in food and fuel costs. He applauds what he regards as bold, preemptive measures by the Federal Reserve to stimulate the weakening US economy.

"The easing of US monetary policy in the present possible recession has far outstripped the pace of easing in previous actual recessions," he said.

The Federal Reserve has cut short-term interest rates by three percentage points in the past year.

Simon Johnson, chief economist at the IMF, says global policy makers are confronting the puzzle of simultaneous slowing of growth and rising inflationary pressure.

"In fact, I can not recall a time when there has been such a striking dichotomy between global credit and commodity markets, both sending conflicting signals regarding the global outlook," he said.

Both the Peterson Institute and the IMF are more optimistic about global economic prospects than some private forecasters who argue that the credit squeeze and growth slowdown are precursors of global recession.