Belfast Telegraph

UK's risk of property double dip increases

The world economy faces a marked slowdown later this year with "persistently high" unemployment and the UK runs the risk of a "double dip" in the property market, the International Monetary Fund has warned.

As the fund and the World Bank prepare for their annual meetings in Washington, the IMF's World Economic Outlook points to still-high house prices in Britain as being "worrisome", despite measures such as two stamp duty holidays to boost demand.

The outlook said: "What remains worrisome, however, is that house prices are still high based on traditional valuation yardsticks, and policy support may not be enough to prevent further correction.

"If employment creation remains low, risks of a double dip in housing naturally increase."

The "real estate quagmire" may hold back recovery, especially in Spain and Ireland.

Compared to its last outlook in July, the fund has revised its forecast for global growth slightly up for 2010, by 0.2% to 4.8%, and down by 0.1% for 2011 to 4.2%.

The global growth figures disguise large disparities in the prospects for emerging and established economies. Growth this year and next in India is set to be 9.7% and 8.4%, and in China 10.5% and 9.6%, back to pre-recession levels.

By contrast many European economies will scarcely grow and may contract. Spain will be the sick man of Europe, according to the world economic outlook, shrinking by 0.3% this year and growing by just 0.7% in 2011. As the fourth largest eurozone economy, that will give policymakers some cause for concern.

As was presaged in its recent report on the UK, the IMF says the UK will grow by 1.7% in 2010 and 2% in 2011.

Even so, the "downside risks remain elevated" across the world, and the fund urges many more nations to frame "growth friendly" deficit reduction programmes.

"Fiscal adjustment needs to start in earnest in 2011," it urges. "Plans to cut future budget deficits are urgently needed to create room for fiscal policy manoeuvre. If global growth threatens to slow more than expected, countries with fiscal room could delay some planned consolidation."