International Monetary Fund Managing Director Rodrigo Rato said on Friday he expected a downward revision of IMF world growth estimates for 2007 and 2008 because of global credit turmoil.
"These (subprime) developments would in turn have consequences for the real economy. We now expect some downward revisions to our baseline growth projections, especially next year," Rato said in a speech that he read at a news briefing on the sidelines of an economic conference here.
"The downward revisions are likely to be largest for the United States, but we may also see some impact in the euro area and Japan."
"This is a serious crisis that will certainly have effects in 2007 and 2008," Rato also told reporters, adding that the impact for 2008 would depend on the length of the market turbulence.
The IMF upwardly revised its forecasts at the beginning of the summer, but the credit crisis will lead them to review those figures, he said.
The crisis generated by U.S. subprime mortgages will be at the centre of the upcoming annual IMF meeting, Rato said.
Conditions in financial markets appeared to be stabilising, he added, but said it was too early to say if the worst was over.
Rato said protracted restrictions on lending could affect household finance and the corporate sector in mature markets and spill over into emerging markets through increased credit spreads and lower capital inflows.
"'Systemically important' banks may face constraints in extending credit," Rato added.
Mass defaults on U.S. subprime mortgages lent mainly to poor people have prompted banks to curb lending as they strive to calculate the risks of offering credit to each other.
Overall, the prospects for emerging markets remained good as they were enjoying stronger fundamentals and had more credible financial institutions than during previous market crises.
"Growth prospects for emerging markets may be affected by trade and financial market spillovers, but generally they remain good," he said.
The return of trust among market participants is the key issue in the wake of the subprime turmoil as well as cooperation among global financial institutions, Rato said.