WASHINGTON, Sept 21: World economic growth will slow this year owing to sky-high oil prices, the IMF said on Wednesday in a report that warned also of looming instability caused by yawning imbalances in the global economy.

In its semi-annual World Economic Outlook report, the International Monetary Fund predicted global growth this year of 4.3 per cent, down from 5.1 per cent in 2004.

This year’s growth prediction was unchanged from the last outlook report in April. But the IMF’s forecast for growth next year was notched down 0.1 percentage point to 4.3 per cent.

“Higher oil prices are a clear and present danger,” IMF senior economist Raghuram Rajan told a news conference.

The world economy remains too reliant on robust demand in the United States and China, said the report, released ahead of weekend IMF and World Bank gatherings in Washington.

While Japan is at last picking up, renewed weakness in Europe is a major worry.

Global manufacturing and trade have strengthened, it said. But “the continuing rise in crude oil and refined product prices — latterly exacerbated by the catastrophic effects of Hurricane Katrina — is an increasingly important offset”.

“Before Katrina, solid growth and booming house prices allowed the US consumer to boldly spend like no one has spent before,” Rajan said. But now, US consumer confidence is at risk as gasoline prices soar, he said.

The 12-nation eurozone faces a “highly uncertain” future, the IMF report said. After showing signs of a turnaround in the second half of 2004, “the tentative expansion in the euro area has faltered once again.”

Risks remain on the downside, given “continued weak final domestic demand and the euro area’s lack of domestic resilience to external shocks.”

More happily for world growth, Japan’s economy is finally “regaining momentum” after a slump lasting more than a decade. Consumer demand, for so long in the doldrums, is gaining ground along with business confidence.

Among emerging markets in Asia, China has again powered ahead and India now ranks among the world’s fastest-growing economies, the report said.

But both countries need to take policy action to keep their rapid growth rates sustained — China stands at risk of overheating and must relax its currency system more, while India must open up its economy further.—AFP