The International Monetary Fund last night cut its forecast for global growth this year as it warned of a possible chain reaction from the six-month-old credit crunch rippling through the global economy.
Predicting the weakest expansion since 2003, the IMF said tougher lending standards imposed as a result of the sub-prime meltdown in the US threatened to curb consumer spending in the west, leading to a knock-on effect on the export-dependent economies of Asia.
"The financial market strains originating in the US sub-prime sector have intensified, while the recent steep sell-off in global equity markets was symptomatic of rising uncertainty," it said. The IMF forecasts came as the Federal Reserve, America’s central bank, prepared to announce whether it would follow last week’s emergency cut in interest rates of 0.75 percentage points with a further reduction in the cost of borrowing.
Despite news yesterday that higher military spending and aircraft orders led to a 5.2% annual increase in durable goods orders in December, Wall Street was convinced last night that the Fed would cut interest rates by 0.5 points to 3%. Figures released yesterday from the 10 biggest metropolitan districts in the US showed house prices falling by a record 8.4% in the year to November.