Taking the Pulse of World Economy

The economic fallout from the September 11 terrorist attacks dealt a brutal blow to economic prospects almost all over the world. Consumer confidence suffered almost everywhere.

According to the IMF, global economic growth is at its weakest in eight years. But a steady hand from policymakers could ensure a swift recovery.

"While there are good reasons to expect a recovery to get underway in 2002, the outlook remains highly uncertain and there is a significant possibility of a worse outcome," the IMF report says.

For this year and the next, the IMF now expects an overall growth of 2.4 percent. That's far less than earlier IMF predictions. In October, it had estimated growth of 2.6 percent for 2001 and 3.5 percent for 2002.

United States

The International Monetary Fund forecasts U.S. economic growth to slow down next year. It says growth this year should come in at 1 percent and predicts 0.7 percent for next year. The United States entered a recession in March, which ended an unprecedented decade-long expansion.

Europe

According to the IMF forecast, growth in the 12-nation euro zone will also be less in 2002 than in 2001. It foresees a growth rate of 1.2 percent in 2002, down from 1.5 percent this year. That would be the weakest growth since 1996.

The IMF has especially had to scale down its predictions for Germany. It expects the German economy will grow by 0.5 percent this year and by 0.7 percent in 2002. Only five weeks ago, the IMF still expected 1 percent growth for next year.

The IMF said that Europe as well as Japan have failed to undertake reforms. If reforms had been implemented in time, these economies wouldn't have felt the slack when the U.S. expansion ended in March of this year.

The IMF reiterated its belief that European countries should be more flexible on fiscal policy, allowing governments to continue spending despite lower revenues.

The IMF's latest forecasts assume a recovery in the coming year based on a rebound in confidence and risk appetite.