The US economy has come to "a virtual standstill" and will remain weak in coming quarters due to deeper problems in housing and credit markets, the International Monetary Fund's chief economist said on Thursday, but avoided calling it a recession.
"Notwithstanding the strong response from US policymakers, tighter financial conditions, higher energy prices, softer labour markets, and the weak housing market all conspire to weigh heavily on the (US) economy in the near term," IMF chief economist Simon Johnson told reporters.
Johnson, speaking ahead of the April 9 release of the IMF's World Economic Outlook, said economic growth in Europe would also slow this year, perhaps with some lag, because of the United States' weak performance. According to leaked copies of the IMF's upcoming global forecast, the IMF now expects the global economy to grow by 3.7 percent in 2008, below an earlier forecast of 4.1 percent.
Johnson said deeper and more protracted strains in financial markets posed the biggest threat to the world economy, with economic growth in major emerging economies also likely to weaken, although it should stay above trend.
"An intensification of problems in the US housing and credit markets could further slow the US economy and weigh on the arc of recovery," he cautioned. He said turmoil in financial markets could slow financial flows into emerging and developing countries, including in eastern Europe, which have benefited from large banking inflows in recent years.
Furthermore, weaker global growth could slow exports and prompt a fall in commodity prices, Johnson said, adding that rising global oil and food prices had pushed up inflation pressures worldwide.