IMF joins the bears, predicts worldwide slowdown

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It’s been clear for months that the U.S. economy, because of the credit crunch caused by the meltdown in the subprime mortgage market, was headed for a slowdown. What was not clear, however, was the extent to which this slowdown would affect the global economy. Last week, there were indications that U.S. problems could spread overseas, but no “official” body had said what everyone seems to be thinking: Growth is going to slow everywhere.

That is, until today. The International Monetary Fund, in its twice annual Global Financial Stability Report, said the subprime meltdown would stall expansion around the world. From the report:

This [the lack of credit] has prompted a retrenchment from some risky assets and de-leveraging, causing a widening of credit spreads in riskier asset classes and more volatile bond and equity markets. The resulting disruption has required extraordinary liquidity injections by a number of central banks to facilitate the orderly functioning of these markets.

How bad will things get? IMF Managing Director Rodrigo de Rato said it’s uncertain how much growth will be affected, as it depends on how long banks are hesitant about lending money. He added that the IMF believed most countries would be able to sustain some type of expansion in the next year, even if it’s below expectations. The United States, however, is in for a tough 2008. According to de Rato, the subprime mess “has an effect on the real economy which will be felt more in 2008, with greater intensity in the United States, less in other areas.” Time to tighten those belts, folks.