IMF scales back US, eurozone growth forecasts

The IMF said Thursday it was scaling back its projections for economic growth in the United States and Europe following recent turmoil on global stock markets tied to the US housing downturn.
Rising US home foreclosures and a persistent housing slump have triggered a US credit crunch which has unsettled global markets and raised concerns about a possible US economic slowdown.
"There will be some downward revision to our growth projection, more so next year than this year," Masood Ahmed, a spokesman for the International Monetary Fund, told reporters at a briefing.
"We can already say that the downward revisions are likely to be the largest for the US but we will also see some impact in the euro area."
The spokesman did not reveal how much the IMF expected to trim its growth estimates, but said fresh assumptions would likely be released in mid-October ahead of the IMF and World Bank annual meetings.
In a July report, the IMF revised higher its projections for global growth in 2007 and 2008 to an annualized clip of 5.2 percent respectively, compared with a prior estimate of 4.9 percent.
It also cut its US gross domestic product (GDP) forecast for 2007 to an annualized two percent, down from 2.2 percent, while maintaining its expected growth outlook of 2.8 percent for 2008.
Eurozone growth was pegged at 2.6 percent in 2007 and a marginally tamer 2.5 percent in 2008.
Concerns about US and global growth have intensified since August when major banks, financial firms and hedge funds revealed hefty losses linked to mortgage-backed securities issued on Wall Street.
The housing storm has ravaged the once-hot market for mortgage-backed securities, spreading panic through global markets as US and foreign investors have sought to offload such risky securities.
The US central bank has come under pressure from Wall Street in recent weeks to reduce borrowing costs as investors fear the housing and credit turbulence could dent growth in the world's biggest economy.
The Federal Reserve has already slashed the interest rate on loans it grants to commercial banks and pumped tens of billions of dollars into the banking system in recent weeks to keep credit flowing, but it remains unclear whether it will cut rates at a scheduled September 18 meeting.
Its key fed funds rate has been anchored at 5.25 percent since June 2006.
US growth accelerated to a 4.0 percent pace in the second quarter, but home sales have continued to tumble since then as home foreclosures have also mounted.
Some economists say the US housing market will remain mired in a slump during 2008.
Despite this, Ahmed said IMF economists "envisage a relatively strong global growth performance continuing."
The spokesman said the weakened outlook would also likely affect the IMF's growth projections for some emerging markets.
The July report had pegged expected growth in China at 11.2 percent, and India and Russia's assumed growth at 9.0 percent and 7.0 percent respectively.