US slowdown, but not recession, is what the International Monetary Fund expects, and the rest of the world should weather that problem, IMF chief economist Simon Johnson said on Wednesday.
Nobody can say for now, however, to what extent the economy of one or other part of the world will be damaged by a credit crunch in financial markets, which politicians and regulators will now have to address, focusing on banks, he said.
"We don't see any reason to think that this is any more than a mild slowdown in the United States," Johnson, on a brief visit to Europe from the IMF's Washington headquarters, said when asked if he ruled out recession.
"Our position on the US economy is that other fundamentals remain strong," he said, noting resilient consumer spending and investment levels despite a housing downturn that has proven worse than first thought and which would take time to ease off.
Things could pick up in the second half of 2008, he told reporters at a briefing. While the IMF's recently increased forecast of 5.2 percent economic growth now looked unattainable, the emerging market economies of the world, notably in Asia, were strong and should stay so, and Europe was in relatively good shape, he said.
"The wild card is financial market turmoil," he said, acknowledging that the IMF had failed, like most others, to spot the trouble that snowballed into a markets crisis in August from what was previously a debt defaults crisis in the high-risk, subprime, segment of the US mortgage market.
"This is an important wake-up call for all of us. There's a serious problem with the plumbing. But the house is not on fire." Johnson said Europe was "a big question now" given second quarter growth figures had come in surprisingly weak, at 0.3 percent quarter-on-quarter, or less than half of the pace registed in the first three months of the year.
The IMF publishes its next series of forecasts in its World Economic Outlook in the days preceding the IMF's October meetings in Washington and Johnson acknowledged that it might be equally difficult then to quantify how much financial market turmoil could cost in lost economic growth. In July, the IMF raised its growth forecasts for the world, mainly China, India and Russia but also Europe, adding that the risks if anything were that European growth would end up stronger than it was predicting.
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