Briefing the press on the "World Economic Outlook" report, released here on Wednesday, IMF chief economist Michael Mussa said "the need is to move to easier monetary policy around the world and that is what we are recommending for 90 per cent of the world's economy."

He, however, said that the world had "not quite reached" the threshold of such a slowdown -- which he defined as a period when world growth was less than 1 per cent.

The IMF has held the Russian financial crisis and recessions in Japan and Asia's emerging markets responsible for the current downturn in the world economy.

The report says world economic conditions have "deteriorated considerably" in recent months as the effects of the deepening recessions in Japan and Asia's emerging market economies and the Russian financial crisis continue tobe felt around the world. "Negative spillovers have been felt in world stock markets, emerging market interest rate spreads, acute pressures on several currencies and further drops in already weak commodity prices," it adds.

As a result, the IMF now estimates that worldwide output growth will be 2 per cent in 1998, a full percentage point less than the Fund's forecast of just four months ago and well below "trend growth" -- the world economy's potential growth rate.

The Outlook is expected to figure during the three-day annual IMF-World Bank annual meeting beginning here on October 5. Finance minister Yashwant Sinha will lead the Indian delegation. "Chances of any significant improvement in 1999 have also diminished and the risks of a deeper, wider and more prolonged downturn have escalated," the document warns. Countries at the centre of the economic and financial crises are the former high-growth economies of Asia, Japan and Russia.

Developing countries as a group will grow by 2.3 per cent in 1998,the report says. The newly industrialising Asian economies, however, will contract by 2.9 per cent. Four Asian countries at the centre of the crisis -- Indonesia, Malaysia, the Philippines and Thailand -- will as a group contract by 10.4 per cent in 1998. As recently as 1996, these four south-east Asian countries grew by 7.1 per cent. Countries in transition as a group will contract by 0.2 per cent because of the situation in Russia. The Russian economy will contract by 0.6 per cent this year, the report says.

North America and the European Union will lead world growth in 1998, it says. US output growth is forecast to be 3.5 per cent; Canadian growth 3 per cent; and the European Union 2.9 per cent. Japan's output is forecast to decline by 2.5 per cent.

The current crises began in July 1997 when Thailand's government began an overdue currency devaluation, which unmasked numerous other problems and escalated into a crisis, quickly spreading to neighbouring Asian economies. This "contagion" -- financialinstability in one country spreading to another -- has characterised the current crisis.

Russia's mid-August devaluation and debt payment default intensified the contagion and extended the crisis to "most emerging market economies and to stock markets globally," the report says. "A key problem is that financial markets tend, in face of such a shock, to be characterised by panic and herd instinct, and, as in times of euphoria, to fail to discriminate between economies with strong and weak fundamentals," the report notes.

The recent upward spike in interest rates in many countries "indicates a sharp slowdown in capital flows, including notably in Latin America," the report says.

"Policy responses can help to restore confidence but even with such actions growth is likely to slow," it says. "The reduced capital flows mean the countries, such as in Latin America, will be exporting more and importing less, just as the Asian countries. This implies another negative shock to be absorbed by the rest of theworld, primarily the United States and the European Union, and also many commodity-exporting developing countries."

Among the countries in the centre of the Asian crisis, two -- South Korea and Thailand -- have made progress towards "restoring confidence and initiating recovery, although their turnarounds remain at risk, including from the external environment," the report says. The situation in Indonesia "remains very difficult," it adds, also noting that Malaysia has resorted to external payments controls "in an effort to insulate its economy from the regional crisis."

The report concedes that its outlook for continued, if slow, growth this year and in 1999 is based on certain crucial assumptions. These include a gradual return of "financial market confidence in the Asian crisis economies as crucial reforms are implemented" and Japan's implementation of its planned fiscal stimulus programme and banking sector restructuring measures.

The outlook also assumes that interest rate premiums will fall andthat capital flows will resume to Latin America and other regions. It is also necessary for the European Union to continue to grow and for the slowing US economy to achieve a "soft landing" without a recession. (IANS)