January 10, 2008

The US will stay out of recession

The US will stay out of recession and central banks will again turn their attention to fighting inflation as growth rebounds in the second half of this year, a lobby group representing many of the world's biggest financial institutions has forecast. The Institute of International Finance predicted that world growth would slow to 3.2 per cent this year, with advanced economies growing 2.1 per cent and emerging markets 6.9 per cent.

It said private capital flows to emerging markets would dip only slightly below what it estimated to be last year's record $681bn (EU462bn, £346bn). The IIF said the US would endure a "relatively brief period of weak growth" due largely to financial pressures arising from the credit squeeze rather than the direct effects of the housing slump, before growth picked up. Its overall forecast for US growth is 2.3 per cent year on year. Its estimates are close to those made by Federal Reserve officials last autumn, in spite of the apparent deterioration in economic prospects since then. They come at a time when many Wall Street economists are marking down their forecasts - with Goldman Sachs this week joining Morgan Stanley and Merrill Lynch in forecasting a US recession and extensive interest rate cuts.

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