IMF's De Rato Says U.S. Housing Slowdown Is a Risk (Update3)

(Update3)

By Rob Delaney and Gemma Daley


Nov. 18 (Bloomberg) -- The U.S. housing market may slow more than it already has, curbing global economic growth, International Monetary Fund Managing Director Rodrigo de Rato said.

``A further correction in the housing market could lead to an even sharper slowdown in the U.S. economy and have spill-over effects abroad,'' de Rato told reporters in Melbourne, where he is attending the meeting of the Group of 20 industrial and emerging economies.

Housing starts in the U.S. tumbled 14.6 in October to the lowest level in more than six years, the Commerce department said yesterday. Housing shaved 1.1 percentage points from economic growth in the U.S. in the third quarter, when the economy grew 1.6 percent, the slowest pace in three years.

De Rato said the IMF's forecasts for global growth made in September were ``broadly unchanged.'' He said the effects of a faster-than-anticipated U.S. slowdown had been mitigated by growth in the dozen countries that share the euro and in emerging economies.

In September the fund forecast the world's economy will expand 5.1 percent this year and 4.9 percent in 2007. Growth in 2005 was 4.9 percent.

De Rato said that the IMF is in talks with China, the U.S., Saudi Arabia, Japan and the nations that share the euro about resolving global imbalances that have resulted in lop-sided traded flows.

Trade Imbalances

Europe's trade deficit with China grew 21 percent in the first eight months of the year to a record 55.1 billion euros ($70.4 billion), the European Union's statistics office said yesterday. The trade gap with Japan widened 17 percent to 14.4 billion euros. The U.S. had a record $23 billion trade gap with China in September alone.

The imbalances with the Asian nations could prompt renewed calls for China and Japan to let their currencies rise at this weekend's G-20 meeting.

The yen is at its lowest against the currencies of the country's biggest trading partners since 1985, according to a Bank of Japan index. The currency's 7.7 percent drop against euro this year has prompted European policy makers to say the level is at odds with Japan's economic expansion.

De Rato said extra investment was needed to increase oil production and lower oil prices. De Rato said subsidies should be reduced.

``Many producing and consuming countries need to step up the pace of investment in both upstream and downstream activities in the energy sector,'' de Rato said. ``Subsidies are an expensive and badly targeted way of protecting the poor from rising energy prices, much of the investment goes to the better off.

Climate Change

De Rato said oil prices would remain high because of strong global demand. High oil prices ``dent'' domestic demand, affect current account deficits and inflation.

Concerns about climate change have ``deepened'' and the impacts of global warming are ``serious'' and ``alarming,'' de Rato said.

``In terms of the effect on people's quality of life, here in Australia and worldwide, the effects could be devastating,'' de Rato said.

Scientists say global warming caused by man-made emissions of carbon dioxide and other so-called greenhouse gases is causing glaciers to melt, sea levels to rise and storms to intensify. The U.K. government said last month tackling the problem by cutting emissions now may cost a 20th of the price of letting it escalate.

To contact the reporters on this story: Gemma Daley in Melbourne at gdaley@bloomberg.net ; Rob Delaney in Melbourne at robdelaney@bloomberg.net

Last Updated: November 17, 2006 17:59 EST

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