11:30AM New York – IMF lowered world economic growth outlook for 2008.

The International Monetary Fund lowered its global economic growth outlook to 4.1% from 4.9% in 2007 on the weakness in the U.S. economic outlook. The forecast was lowered by 0.3% from its previous outlook issued in October.

The IMF lowered its outlook for the U.S. economic growth from 2.2% growth to 1.5%.

IMF forecast may prove to be optimistic as only six months ago the IMF officials had dismissed the global implication of the sub-prime crisis in the U.S.

The Fund said that emerging economies are more “resilient” and likely to benefit from the rising domestic consumption, huge foreign exchange reserves, and growing consumer base.

China is expected to grow at 10% in 2008 from 11.4% in 2007 and Latin America is estimated to slow to 4.3% in 2008 from 5.4% in 2007.

The reports summarized, “A possibly deeper economic downturn in the United States or elsewhere could also serve to widen the crisis beyond the subprime sector, as credit deteriorates more broadly.

Already, delinquency rates in 2007 vintages of U.S. prime mortgages (those to the most credit worthy borrowers) are rising faster than in previous years, albeit from low levels, and other forms of consumer credit show signs of deterioration.

In Western Europe, signs of a future slowdown in credit growth are just now emerging and there is some potential for worsening credit quality as lending has been very robust in some countries and several countries face housing markets considered overvalued.”

The IMF also worried that the ability of the corporations in the U.S. and developed Europe to borrow more funds may be limited.

The report noted, “In both the United States and Europe, lending in some segments of the corporate sector also expanded rapidly in the first half of 2007 with the rise in leveraged buyouts.

Weaker quality corporations have already seen a substantial rise in the cost of credit and anticipated corporate default rates have risen by about five-fold. Additionally, slowing economies will be likely to exacerbate the tighter credit environment further as unemployment picks up and job growth slows.”



10:00AM New York, 7:30PM Mumbai – Stocks in Mumbai trading fell after the RBI left rates and reserve ratios unchanged. RBI issued an upbeat assessment of the economy.

Market Sentiment

Stocks in Mumbai trading fell after the Reserve Bank of India left the key rate unchanged. Property, banks, and auto stocks fell.

The RBI announced its quarterly monetary policy review statement on Tuesday and kept the repo rate, reverse repo rate, bank rate and cash reserve ratio unchanged.

Market analysts had projected a 25 basis points repo rate cut by the central bank after a sharp cut in the US interest rates last week.

The late recovery on the market was not enough to lift the market from the afternoon loses. The key benchmark, Sensex fell below 18,000 during the afternoon trade.