Don't Take Boom Times For Granted, IMF Says

Source : The Business Times, October 10, 2007

WASHINGTON - The global economy is enjoying its strongest growth since the early 1970s and the benefits have been shared widely, but policy-makers should not take the good times for granted, the International Monetary Fund said.

The rapid growth of global trade and access to financing have helped smooth out volatility, prolonging expansions and shortening recessions, but policy needs to remain flexible to cope with new risks, the IMF said in initial chapters of its World Economic Outlook, due out in full on Oct 17.

Tightening credit terms spawned by the sputtering US housing market highlight just how tightly global financial markets are connected - and how closely policy-makers need to watch for signs of stress, the IMF said.

'Although the business cycle has changed for the better, policy-makers must remember that it has not disappeared,' researchers Martin Sommer and Nikola Spatafora wrote in a chapter on the changing dynamics of the global business cycle.

The researchers warned against 'overconfidence in the ability of the current policy framework to deliver stability indefinitely' and noted that low volatility does not rule out occasional recessions.

'The task of maintaining expansions requires policy-makers to adapt because the process of trade and financial globalisation may have generated new risks and vulnerabilities,' the researchers wrote.

'For example, the losses associated with highly leveraged investments in the US sub-prime mortgage market have created distress in the banking sector in many advanced economies, raising concerns about a possible credit crunch.' -- REUTERS