The world is heading towards a global recession, latest forecasts from the International Monetary Fund (IMF) have predicted.
As the credit crisis continues to tighten its grip in the UK, it seems the rest of the world is also feeling the squeeze. In its latest World Economic Outlook, the IMF drastically cut its forecasts for the United States' economic growth with most world financial players also receiving a forecast cut to some degree.
IMF chief economist, Simon Johnson, said: "We now expect global growth will slow to 3.7 per cent in 2008; that is half a percentage point lower than our January quarterly update forecast, and well below the 4.9 per cent growth seen in 2007."
The US is, thus far, one of the hardest hit by the current financial turmoil, with growth predictions for 2008 falling to 0.6 per cent. The credit crisis has, according to the IMF: "quickly spread from the U.S sub prime sector to core parts of the financial system."
As a result, the IMF has predicted that the US will slip into a "mild recession" in 2008.
Even countries whose economic growth has previously been above average are starting to see a slowdown. The IMF report shows that China's economic growth is expected to slow from above 11 per cent down to 9.3 per cent in 2008.
Chancellor Alistair Darling yesterday defended the UK’s economic position on Radio 4's Today Programme. Mr Darling said: "The IMF has downrated every country's growth forecast in the light of what's been happening in the world economy. However, they have lowered their expectations in relation to us by less than other countries."
The IMF has forecast that the UK economy will fall from 3.1 in 2007 to 1.6 in 2008, a lesser decline than the US, which is heading for an almost certain recession. The IMF's prediction is considerably lower than Mr. Darling's Budget prediction which estimated the UK economic growth for 2008 at between 1.75 and 2.25 per cent.
Speaking on Radio 4, Mr Darling explained that he intends to stick by his forecast, commenting that provided the UK "take action" as a nation and "remain vigilant", it can ensure the economy continues to grow as it has done for the last 11 years.
House prices in the UK are continuing to fall, whilst mortgage rates and energy bills rise. The Bank of England’s Monetary Policy Committee (MPC) has today announced it will cut the base interest rate from 5.25 per cent to 5.0 per cent, a move that is believed by experts to be an attempt at boosting the economy and stemming the credit crisis or, as Mr. Darling puts it - taking action.