The International Monetary Fund (IMF) is to offer a $16.5bn (£10.4bn) loan to Ukraine and has agreed an as yet undisclosed package with Hungary.

Ukraine is to receive the loan to help it “maintain confidence and economic and financial stability”, the IMF said.

The country has seen its stocks, banks and currency badly shaken by the global credit crunch.

The “substantial financing package” for Hungary is due to be finalised in the next few days, the IMF said.

It is conditional upon Hungary adopting “strong policies” and will be drawn from the IMF, the EU, and some individual European governments “together with regional and other multilateral institutions”, IMF Managing Director Dominique Strauss-Kahn said in a statement.

“The policies Hungary envisages justify an exceptional level of access to fund resources,” he added.

“Ukraine and Hungary are trapped in the vice of the last phase of deleveraging, or the reduction in credit being provided by banks and other investors, and the decline in the real economy” Robert Peston BBC Business Editor

The BBC’s Sarah Morris in Washington says this suggests the loan is likely to be one of the biggest the IMF has ever made.

Hungary’s currency, the forint, has seen a sharp fall, stocks have tumbled and the country has cut its growth forecast for 2009.

Currency plunge

Internal political turmoil has delayed economic development in Ukraine and the IMF loan depends on the ex-Soviet state being able to balance its budget and make reforms to its banking sector.

Last week, the IMF said it was to give Iceland a £2.1bn loan as its banking system came close to collapse.

Pakistan and Belarus are also in talks about accessing IMF funding.

“The authorities’ programme is intended to support Ukraine’s return to economic and financial stability, by addressing financial sector liquidity and solvency problems, by smoothing the adjustment to large external shocks and by reducing inflation,” said Mr Strauss-Kahn.

“At the same time, it will guard against a deep output decline by insulating household and corporations to the extent possible.”

Easy credit and a property boom have seen Ukraine’s capital Kiev expand rapidly but the global downturn has seen investors and those willing to offer loans withdraw.

Ukraine also relies heavily on steel, but prices have collapsed and its currency, the hryvnia, has fallen sharply in the past two weeks.

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The International Monetary Fund (IMF) has cut its forecast for UK economic growth over the next two years.

The IMF predicted the UK would grow by 1.4% in 2008 and 1.1% in 2009, down from the 1.8% for 2008 and 1.7% for 2009 that it predicted in July.

It said inflation at 3.8% was higher than expected, and inflation expectations were rising even as as economic activity was slowing.

That, it said, meant the Bank of England had little room to cut rates.

The IMF growth forecast for 2009 is substantially below the official forecast of the UK government, which is still expecting growth to pick up to around 2.5% next year, and even lower than the consensus projections by independent forecasters of 1.4% growth.

The slowdown will put more pressure on the government budget at a time when it is facing a record deficit.

Budget gap

The IMF said that the government was likely to breach its fiscal rules, with the budget deficit above 3.5% of GDP for both 2008 and 2009, while the 40% debt ceiling was likely to be breached from 2009. The IMF report is a damning judgement on almost every aspect of Mr Brown’s legacy as Chancellor

Shadow Chief Secretary to the Treasury Phil Hammond

And it warned that the government was in danger of losing credibility if it made a too-drastic revision of the fiscal rules, as it is rumoured to be considering in the pre-Budget report.

In particular, it warned against any change to the budget ceiling of 40%, and suggested the government give an assurance that it will bring debt back below that level in a short time period.

The IMF pointed out that it could take years of fiscal adjustment, with sharp spending cuts or tax rises of up to 1% of GDP a year up to 2013, to bring the budget back into equilibrium.

The IMF gives its broad backing to the recently announced government plan to reform the system of financial stability to prevent another Northern Rock from emerging.

But it warned that “clarity of Bank of England authority and ability to act” in the next credit crisis were essential if the reforms were to work effectively.

‘Inflation moorings’

The IMF’s annual check of the UK economy said that the housing market had weakened markedly, while export demand remained subdued.

It also said that second quarter growth was weak and that unemployment has edged up.

“Given the outlook for inflation and the stance of fiscal policy, directors saw little scope for monetary easing at present,” it said.

The IMF predicted inflation would exceed the Bank’s 2% target for an “extended period”.

It also said that if the “inflation anchor looses its moorings” the management of immediate macroeconomic challenges “will become even more difficult”.

That, it said, would mean the burden on monetary policy rising, impeding exports, rebalancing, and eventual recovery.

However it did note that wage price pressures remained subdued.

The Bank of England’s monetary policy committee is expected to keep interest rates on hold at 5% on Thursday.

Shadow Chief Secretary to the Treasury Phil Hammond said:

“The IMF report is a damning judgement on almost every aspect of Mr Brown’s legacy as Chancellor.”

News reported by The BBC

Japan’s industrial output slid by a greater-than-expected 2% during June, adding to fears that the country could be heading into a recession.

The government confirmed that output was softening, having previously said that it was generally flat.

The figures came as the International Monetary Fund (IMF) predicted Japan was heading for an economic slowdown.

But the IMF said the Bank of Japan could afford to hold interest rates steady to see how the economy develops.

“We do see the economy growing to a virtual standstill in the second quarter of the year and rather weak growth in the second half of the year before beginning to recover next year,” said Daniel Citrin from the IMF.

Recession fears

But some analysts see the weak output figures as indicating that the economy will contract, rather than remaining at a standstill.

The data “is quite bad and suggests the the Japanese economy is likely slipping into a recession,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

The government said its survey of manufacturers suggested output would decrease by 0.2% in July and by another 0.6% in August.

The major concerns for Japanese manufacturers are rising commodity prices and the weakening of the economies of some of its main customers.

The sectors that were mainly responsible for June’s slowdown were transport and general machinery.

“Firm demand from overseas economies has been supporting production but as exports weakened in June, we can no longer count on it,” said Mr Minami.

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Oil prices have tumbled to seven-week lows amid concerns that the slowing US economy will weaken demand.

US sweet, light crude fell $2.23 to settle at $123.26 a barrel – more than $20 off their peak earlier in July, when prices reached a record $147.27.

Brent crude in London also fell, dropping $1.92 to $124.52.

The oil market has been volatile as traders assess whether there will be enough supply to meet demand, with some predicting further price falls.

Analysts at Lehman Brothers predict oil prices could drop below $100 by the end of the first quarter of 2009.

But others are sceptical.

“Nothing in the fundamental drivers has changed,” said Harry Tchilinguirian, an oil analyst at BNP Paribas.

Volatile market

Since last September, traders have been betting that the need for oil from economies, such as China, would continue to power the demand for oil.

Earlier this month, the International Monetary Fund (IMF) upgraded its economic forecasts for these countries.

At the same time, tensions between politically unstable oil-producing nations and the West sparked fears that supply would be constrained.

The weakening US currency has also encouraged investors to switch into commodities, which have been seen as a more attractive investment as the US economy falters.

A slight rebound in the dollar after a smaller-than-expected decline in new housing sales helped to give oil prices some relief, analysts said.

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The International Monetary Fund (IMF) has raised its global economic forecast for this year and 2009 because the effects of the credit crisis were not as bad as expected.

The IMF yesterday revised up estimates it made in April and said it now expects the world economy to grow by 4.1 per cent this year, up from 3.7 per cent. Next year’s growth will be 3.9 per cent, slightly higher than April’s 3.8 per cent prediction but still much lower than the 5 per cent notched up in 2007.

The IMF revised up its forecasts for growth in the UK. The fund had forecast 1.6 per cent growth in the UK this year and next but it now expects expansion of 1.8 per cent in 2008 and 1.7 per cent in 2009.

With the economy slowing, the Treasury is now set to concede that its fiscal rules on spending and debt need reworking to allow the Government to borrow more into the downturn. The slowdown has put the public finances under severe strain, with public sector borrowing on the rise and receipts from stamp duty and other taxes falling.

The fund said the effects of the financial crisis that started with the US sub-prime meltdown were still seeping into the world economy but more slowly than expected. The US fiscal stimulus package is also supporting spending by American households for now, it added.

The American economy will expand by 1.3 per cent this year and not the 0.5 per cent it estimated in April. Growth in 2009 would slow but to 0.8 per cent rather than the earlier 0.6 per cent projection. Despite the upgrades, the IMF warned that the outlook for the world economy was uncertain, with financial markets fragile and inflation on the increase.

“The global economy is in a tough spot, caught between sharply slowing demand in many advanced economies and rising inflation everywhere, notably in emerging and developing countries,” the fund said in an update of its World Economic Outlook. “The top priority for policymakers is to head off rising inflationary pressure, while keeping sight of risks to growth.”

Central bankers are grappling with slowing economies and rising prices as energy and food prices increase, due mainly to growing demand in developing economies. The price of oil fell for the third day running yesterday, partly on the growing belief that the slowing world economy will reduce demand in manufacturing powerhouses such as China. Crude oil fell by $5.31 a barrel to $129.29 in New York.

The IMF revised up slightly growth forecasts for emerging and developing economies to 6.9 per cent in 2008 and 6.7 per cent in 2009 but the projections were still down sharply on the 8 per cent growth last year. The key Chinese economy is expected to slow to about 10 per cent from about 12 per cent last year. Beijing said yesterday that gross domestic product cooled to 10.1 per cent in the second quarter from 10.6 per cent in the first quarter.

Higher interest rates and fiscal restraint are needed in emerging economies to ward off inflation, the IMF said.

There is less call for raising interest rates in advanced eco-nomies because inflation expectations and labour costs will be tamed by slowing growth, the report said. The Bank of England has said the slowing economy should help to bring Britain’s surging inflation back to target.

The IMF’s more optimistic outlook was reflected in stock markets yesterday as concerns about the financial sector ebbed, at least for now. The FTSE 100 rose 2.6 per cent to 5,286.3, rebounding after hitting a three-year low on Wednesday. The pan-European FTSEurofirst also jumped, closing up 2.7 per cent. In the US, the Dow Jones Industrial Average closed up 1.85 per cent.

There was mixed economic news from the US yesterday. Figures for housing starts came in better than expected but were found to have been boosted by a change to New York’s building code.

News reported by The Independent

The International Monetary Fund (IMF) has raised its global economic forecast after the impact of a credit crunch was not as severe as had been first feared.

The IMF said it now expects the global economy to grow 4.1% in 2008, up from an initial forecast of 3.7% in April. That compares with 5% growth in 2007.

Despite upgrading forecasts for the UK and US, the IMF warned that the global economy remained in a “tough spot”.

Policymakers need to balance growth, while dealing with inflation, it said.

“The global economy is in a tough spot, caught between sharply slowing demand in many advanced economies and rising inflation everywhere, notably in emerging and developing countries,” the IMF said in an update to the World Economic Outlook it published in April.

Revisions

“The top priority for policymakers is to head off rising inflationary pressure, while keeping sight of risks to growth.”

2008 GROWTH FORECAST
Global economy to grow 4.1%
US to grow 1.3%
Japan to grow 1.5%
UK to grow by 1.8%
China to grow 9.7%
Source: IMF

The comments from the IMF may go some way to easing concerns that many of the world’s largest economies are heading for a prolonged recession, brought on by problems in the US housing market and the subsequent credit crunch.

Based on its new calculations, the IMF expects the UK economy to grow by 1.8% in 2008 and 1.7% in 2009 – up from a previous forecast of growth of 1.6% in both years.

The UK government has forecast growth of 2% this year and 2.5% in 2009.

According to the IMF, the US economy is also expected to perform better than initially forecast.

The IMF expects US growth of 1.3%, up from an April forecast of 0.5%.

However, it warned that the US economy was projected “to contract moderately during the second half of the year”.

Resilient

The IMF added that risks to the world economy from the financial sector remained elevated and said inflation was an increasing concern.

“Inflation is mounting in both advanced and emerging economies, despite the global slowdown,” the IMF said in its report.

It also pointed out that central banks and governments were having to juggle the twin problems of slowing economic growth and surging inflation, driven by record oil prices and higher food costs.

“Policymakers face a very difficult environment,” the IMF said.

“They need to head off rising inflationary pressure, while also being mindful of downside risks to growth.”

On the positive side, the IMF said that demand in advanced and emerging economies might be more resilient than first thought to recent jumps in commodity prices, and be able to resist shocks from the financial sector.

News reported by BBC