IMF gloomy as oil slumps

THE International Monetary Fund is as confused as ever as to what constitutes a world recession. Its official post-11 September forecast shifts its growth projections for this year and next downwards to 2.4%, against 2.6% for this year and 3.5% for next. Managing director Horst Koehler remains adamant that this does not represent a global recession.

This is something of a rewriting of history, perhaps designed not to award Osama Bin Laden even the sniff of an economic victory. But the convention within the IMF has long been that global growth of less than 2.5% constitutes recession. In the real world of output and jobs, such definitional disputes are no more than semantics.

What is certain from the latest IMF numbers is that the condition of the richest nations has worsened considerably since it last issued a pronouncement in September. The most shocking downward revision is for the United States next year. The IMF economists have taken a red pencil to their previous forecast of a 2.2% expansion in 2002 and lowered to 0.7%, much to the anguish of US Treasury Secretary Paul O'Neill. The fund has revised its forecast because of worsening business investment, falling consumer confidence and widespread uncertainty about job losses.

The gloom is not confined to the US. Japan has even worse prospects. Outright recession is predicted for this year and next, with output plunging 0.9% in 2001 and 1.3% in 2002, against previous forecasts of contractions of 0.2% and 0.5% respectively.

The IMF does not mince its words. It tells Japan's reform minded Prime Minister Junichiro Koizumi that this would be the worst possible time to start trimming public spending, and that what is needed is another fiscal boost.

The forecasts for euroland have also been trimmed, but its economy will remain in positive territory. Nevertheless, Koehler made it clear that he thinks there is further room for interest rate cuts beyond the half point cut to 3.25% last week.

One symbol of the plunging demand in the global economy is the developing crisis in the oil market. The oil price, which initially spurted after 11 September on fears of a conflagration in the Gulf, has fallen back to earth. In the latest trading it dipped below $17 a barrel, bringing prices down 50% over the last year.

The refusal, thus far, of Russia and Norway to match Opec's proposed cuts in production means that it could fall further, to $15 a barrel, before the non-Opec members step in with stabilisers.

One immediate effect of the oil price plunge is to turn the stock markets' star pupils, the oil majors, into dunces. Some $51bn has been knocked off the share prices of Europe's big three companies BP, Shell and Total Fina in the last 48 hours. If the IMF is correct in its diagnosis and two of the world's biggest oil importers, the US and Japan, remain mired in slump through most of next year, there is no reason to expect any real bounce in energy prices.

This makes it all the more essential that the US, Japan and Europe take urgent fiscal action - to support the monetary easing which already has taken place - and to ensure that there is not a worldwide deflation.

Singer's high notes

TELEWEST, like much of the media sector, is still a company with deep-seated problems. As readers of this column will know, its expensively dug cables have not always proved to be the failsafe technology they were once seen to be.

Still, even though the company is a huge lossmaker at the pre-tax level, running up a further £597m of red ink in the nine months to 30 September, there are signs of real hope in its latest figures.

Most impressive is Telewest's onslaught on the broadband market through its blueyonder service. While BT is still at the starting gate, Telewest is achieving real growth in the sector and now has 70,000 broadband subscribers with 71% growth quarter on quarter.

Believe it or not, it is also driving down net losses to £26m in the third quarter, from £81m in the second quarter.

The underlying problem for Telewest is the weight of debt, which is a shade under £4.9bn. This does not represent an immediate crisis because its biggest shareholder, John Malone of Denver-based Liberty Media, stands full square behind the company and its chief executive Adam Singer, an escapee from Colorado.

The real problem would arise if Telewest were to try to merge with NTL, which has almost three times as much debt. To pull that off would require a major reorganisation of borrowings and perhaps a debt-equity swap. It is not inconceivable now that the cable delivery system is being seen to work.