The International Monetary Fund has slashed its 2008 global economic growth outlook, warning that turbulence stemming from a crisis in the US housing sector could affect growth worldwide.
The world economy is expected to expand by 4.8% next year after a 5.2% pace this year, the IMF said in its twice-yearly World Economic Outlook report.
The downgrade comes in the wake of turmoil in global financial markets in August that prompted the IMF to reverse course after an unusual update in July in which it raised its 2008 global growth forecast to 5.2%.
The IMF said the greatest threat to the world economy is the financial market unrest stemming from the high-risk US sub-prime mortgage sector, where loans were given home buyers with poor credit histories. This has affected banks and lenders worldwide and made credit conditions more difficult.
The IMF said it partly based its 2008 global forecast on the assumption that the US Federal Reserve would cut interest rates by a further half-point by the end of the year.
The IMF said the US is facing a rising risk of recession due to a severe, two-year downturn in the housing sector that could hit consumer spending. The Fund shaved its US economic growth forecast by 0.1 points to 1.9% for this year and by a sharper 0.9 points to 1.9% for 2008.
In the euro zone, the growth forecast was reduced to 2.1% in 2008, 0.4 percentage points lower than in July, as a result of the delayed effects of a stronger euro, trade spillovers from the US and more difficult financing conditions.
For Ireland, the IMF predicted 4.6% growth this year, falling to 3% next year, with the unemployment rate rising to 5.5% next year.
