Global Policy Forum

By Joseph Kahn

Washington - The final strains of the financial virus that toppled emerging market economies around the world have dissipated, allowing the world economy to regain its health and to grow at its fastest pace in more than a decade, the International Monetary Fund said today.

In its twice-yearly World Economic Outlook the monetary fund forecast that the global economy, led by the persistently robust growth in the United States, would expand at a 4.2 percent rate in 2000, its fastest pace since 1988. The fund's economists estimated that growth would taper off slightly in 2001 to 3.9 percent. But the fund warned that a number of things cloud that rosy outlook, including lopsided growth among countries, currencies that appear to be out of whack with one another and high stock prices in some countries, including the United States. The fund said that the United States needs to engineer a soft landing for its economy, that Europe must not kill off faster economic growth with rising interest rates, and that Japan needs to put some zest in its "fragile" recovery.

"Evidence of a strong rebound in the global economy has continued to accumulate in recent months and the momentum of the recovery from the 1997-98 slowdown has proven much stronger than anticipated," the I.M.F. said. "At the same time, considerable uncertainty remains about the sustainability of the expansion in some countries." The Washington-based fund, which monitors the world's macro economy and makes loans to poor and middle-income countries, sounded a strong note of caution about the United States. Though the fund estimated that the United States will grow at a faster-than-average rate of 4.4 percent this year and 3 percent next year, it cited numerous signs of financial excess that could derail the expansion and wallop the rest of the world.

Overvalued stock markets, the widespread use of credit, record low savings rates and a giant gap between the amount the United States spends on goods abroad, and the much smaller amount that foreigners spend on American goods create worrying "imbalances" that could make any economic downturn in this country sharper than it would otherwise be, it said. The most likely scenario for the United States economy is a soft landing in which the expansion slows a bit before picking up again, the fund said. But it also cited a less likely set of events in which a pick up of inflation, a 25 percent slump in stock prices and a 20 percent dive in the value of the dollar combine to bring United States growth to a sudden halt -- a hard landing. In that case, worldwide economic growth would be a full percentage point lower than otherwise, the fund estimated.

"Very high valuations, particularly in the technology and bio-tech sectors, continue to pose the risk of a large market correction and a sharper economic slowdown" in the United States, the report said. The release of the fund's economic outlook came just before the formal beginning of the annual spring meetings at the fund and its sister agency, the World Bank. Financial ministers from around the world will arrive in Washington this weekend to review the performance of the fund and the bank, which together seek to maintain economic stability and alleviate poverty.

The meetings have attracted a much larger than usual response from groups wary of globalization, especially some nongovernment organizations that support environmental, religious and third-world development causes. Protesters said they will attempt to shut down the meetings because they accuse the two lending agencies of supporting corporations over poor nations and rampant free-market capitalism over sustainable development. But from the monetary fund's perspective, the spring meetings are in some respects less stressful than they have been for several years. Many nations that receive I.M.F. aid, including long-slumping Russia, are performing better than expectations, meaning that the fund is in the position of ratcheting up estimates of growth rather than lowering them as it has had to do in recent years.

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