Delivering a lecture at Reserve Bank of India here today, Mr Kahn said, the linkages between financial and real sectors, developed and emerging markets, are much more complex than they were before. ''Linkages to the present global turmoil is also significant because if the US economy slows down by one per cent, the emerging economy would experience a slow down in between a range of 0.5 per cent to 1 per cent depending on their trade links,'' he pointed out. Mr Kahn emphasised that decoupling was a very strange and misleading idea. The economic slowdown in the US will be significant and will last for some time.
He said, ''Last month, the IMF cut its forecast for world growth for the year in the face of continued stress in global credit markets, and warned that economic activity could slow even further.'' The international capital market department lowered its global 2008 growth projection to 4.1 percent from 4.4 percent, reflecting a marked slowdown from the 4.9 percent pace achieved last year.
IMF has also cautioned that the main risk to the global outlook was the ongoing turmoil in financial markets, which would further reduce domestic demand in advanced economies and create more significant spillovers into emerging markets and developing economies, Mr Kahn asserted.