IMF says rebalancing of global demand crucial amid slowing US economy

The International Monetary Fund said a rebalancing of demand in other parts of the world is crucial given the prospects of a slowing US economy, which would drag on global growth.
At a briefing here, IMF managing director Rodrigo de Rato said that while the US economic slowdown will not be dramatic, the world is in a "less dynamic environment" right now.
US economic growth is expected to slow to 2.9 pct next year from 3.4 pct this year amid a cooling housing market, according to the IMF World Economic Report 2006 (WEO).
The Fund's first deputy managing director, John Lipsky, said a rebalancing of demand elsewhere in the world would entail strengthening of domestic demand in the form of stronger growth in investments and stronger growth in consumption in other advanced economies.
"The somewhat slower growth in consumption in the US was part of an inevitable and desirable adjustment process. What is important is that it is kept in balance and on track and does not involve a slowdown in global growth," Lipsky said.
The IMF expects the world economy to grow 5.1 pct this year before slowing to 4.9 pct in 2007.
The IMF also said in the WEO that the Federal Reserve may need to do further monetary policy tightening to keep inflation expectations in check.
"Domestic policies in the US will play a very important role and we have seen a transition to a policy of monetary tightening; fiscal policy will play a very important role too," de Rato said.
"But other countries' rebalancing of demand is going to be crucial in this respect. Certainly the credibility of monetary policy in regard to inflation is very important," he said.