By Peter Smith in Coolum

Friday, August 03, 2007





The outlook for the global economy remains “very favourable” despite recent market volatility and concerns about the unfurling US subprime mortgage market crisis, according to John Lipsky, the IMF's first deputy managing director.



Speaking on the sidelines of a meeting in Australia of finance ministers from the 21 Asia-Pacific Economic Co-operation economies, Mr Lipsky said yesterday the IMF would not revise its forecast that the world economy would grow 5.2 per cent his year.



He acknowledged that there were “downside risks” to the global economy based on high energy prices and financial market volatility, but said it should not be a surprise if investors in high-return investment funds suffered from the subprime problems.

Now we see why [the funds] are high-return,” Mr Lipsky said. “It should not come as a shock it has caused some pain.''



Mr Lipsky added that the widening of global credit spreads was arguably more important to the economic outlook than the recent weakness in equities and said “the realignment of risk . . . is not necessarily unsettling”.



Questioned about the effect of the weak Japanese yen on the export competitiveness of neighbouring Asian countries, a subject of discussion during this week's Apec meetings, Mr Lipsky said the IMF had been looking at Japan and would release its assessment in the coming days.



The IMF upgraded its world growth forecast last week by 0.3 percentage points to 5.2 per cent, saying stronger growth in big emerging market countries, particularly China, India and Russia, had brightened the economic outlook. It came despite a downgrade in projected growth in the US.



Haruhiko Kuroda, the Asian Development Bank president, said yesterday that he did not expect the US subprime crisis to damage Asian economic growth. The ADB is likely to increase its Asian region growth estimates when it publishes an economic update next month. Peter Costello, Australia's treasurer and host of this week's Apec meeting, said lessons had been learned since the Asia crisis 10 years ago.



“But you would be a fool if you thought there are no other economic challenges out there. You have got volatility on international stock markets. You have got volatility on currency markets and you have got record oil prices,” he said. “You have seen in recent days how events in far away places can affect your country in a significant way.”



Shares in Macquarie Bank fell sharply this week as Australia's largest investment bank was caught up in the effects of the US subprime crisis.



The Apec meeting in Coolum this week is a prelude to an forum in Sydney in September, when leaders of the US, China, Russia, Japan and Canada and 16 other Apec economies will meet to discuss a range of issues including energy security and climate change.

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