Oil, food prices may further dampen growth: IMF

By Lesley Wroughton

WASHINGTON (Reuters) - The International Monetary Fund said on Thursday it is sticking to world economic forecasts for now, but cautioned that much higher global prices for oil and food could dampen growth.

"Despite increasing oil prices, the broad contours of the fund's assessment of the global outlook remain unchanged at this stage," IMF spokesman David Hawley told reporters.

"Significantly higher oil and commodity prices could have a dampening effect on growth if prices remain at elevated levels," he added.

His comments came as crude oil rose to a record above $135 a barrel on Thursday and OPEC oil ministers said they could do nothing to lower oil prices, calling the market "crazy." By the end of the day U.S. crude settled down $2.36 to $130.81.

Turning to global credit markets, Hawley said the ability of banks to raise capital was "reassuring" although a protracted adjustment in financial sector balance sheets is still likely.

The Washington-based IMF has twice cut its growth forecast for the world economy this year -- in January and again in April. In its last outlook in April, it warned the United States was headed for recession this year and put world growth at 3.7 percent in 2008.

That was down from a forecast in October of growth of 4.8 percent and a forecast in January of 4.1 percent, as it tried to account for the world's fast-spreading credit turmoil.

Hawley said the IMF would update its forecast again in July. Meanwhile, a team of IMF economists was currently in Europe assessing the euro-area economy and "and they will be concluding their work in the next few days," he said.

Authorities in the United States and Europe accused the IMF in April of being overly pessimistic in its April outlook.

First-quarter gross domestic product growth released on Thursday for the 15 countries using the euro topped expectations in an initial estimate by the European Union's statistics office at 0.7 percent quarter-on-quarter and 2.2. percent annually.

Jean-Claude Juncker, the chairman of euro zone finance ministers, said he did not believe the worst of the financial market crisis was over and Europe will continue to be affected by the problems, which sprang from sloppy lending practices in the U.S. housing market.

A spokesperson for the European Commission, however, acknowledged that high oil prices could reduce euro-zone economic growth below the 1.7 percent forecast by the Commission for this year.

On Wednesday, the U.S. Federal Reserve slashed its U.S. economic growth forecast for 2008 to between 0.3 percent and 1.2 percent, down from a prior forecast of 1.3 percent to 2 percent three months ago. The IMF believes U.S. economic growth will skid from a subpar 2.2. percent in 2007 to 0.5 percent this year and 0.6 percent next year.

(Reporting by Lesley Wroughton; Editing by Leslie Adler)