New subprime losses main risk to world growth: IMF
World economic growth could miss the International Monetary Fund's forecast of 4.1 percent this year if US and European banks disclose more major losses on the subprime market, the head of the IMF said Monday.
Dominique Strauss-Kahn, starting a three-nation African tour in Burkina Faso, warned that merging economies would not escape the effects of the slowdown in rich countries, although they would continue to grow quickly in 2008.
The IMF cut its 2008 global growth projection to 4.1 percent last month from a previous forecast of 4.4 percent, blaming the weak outlook in the United States and Europe.
“Are there some downside risks? Yes, of course. Mainly, we don't know exactly today if the whole disclosure on the subprime crisis has been done,” Strauss-Kahn told Reuters in an interview in Burkina Faso's capital, Ouagadougou.
“It looks as if in the United States, a lot has been disclosed ... Many experts say that in Europe some disclosure has still to come, so it's very difficult to know.”
Banks in the United States and Europe have already unveiled multibillion-dollar losses from defaults on loans to home owners with bad credit histories, as Western property markets have cooled and fears of a US recession have grown.
Strauss-Kahn, a former French Socialist finance minister, cited concerns over the health of so-called “monoline insurers,” specialised insurers that are facing billions of dollars in loses from risky US subprime bonds.
US banks and regulators scrambled on Monday to put together a rescue package to bolster monoline bond insurer Ambac ABK.N, while Goldman Sachs forecast write-downs of between $1 billion and $12 billion each for several large US brokers.
“If there is some new climax in the crisis ... we will probably have bad news” on growth, he said. “If there is no more disclosure, if no more losses appear, then probably the forecasts are accurate. There even may be good surprises.”
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