“The forecasts we’re going to release in a few days show things are not really improving. The downside risks identified six months ago have materialised,” said Mr Strauss-Kahn at a conference hosted by Prime Minister Gordon Brown in Watford in England.

“So it already means the global forecast for the global economy is around 3.7 pct for next year which is one of the lowest in the last two decades,” he said. Although he spoke of “next year”,  Mr Strauss-Kahn appeared to be referring to 2008 economic growth. The IMF’s twice-yearly World Economic Outlook is due to be released on April 9.

Decoupling theory

The IMF said, on Thursday it had cut its 2008 outlook for world economic growth for the second time this year, in a move that acknowledged housing and credit problems in the United States were exacting a heavy toll on the global economy.  The IMF said it expects the pace of global growth to slow to 3.7 per cent this year, down from its January forecast of 4.1 per cent and lower still from the 4.8 per cent rate it predicted in October last year.

The slower pace of world economic growth came from “ongoing slowing down in the United States” and was also due to the “somewhat rapid spillover from the US to European countries,” he said. “The so-called decoupling theory appears to be misleading. In fact, emerging economies including China, India and Brazil suffer from slowdown from the rest of the world, even if they stay at high levels of growth,” he said.

He said it was “not enough to think” that fiscal stimulus would boost growth next year. Until confidence between financial institutions returned, there would be no solution to current market turmoil, he said. “The only good news is on the trade side,” he said, referring to prospects of progress in global trade talks.