Is the glass half full or half empty? According to a confidential International Monetary Fund report seen by the Financial Times, the glass looks full but is developing some alarming cracks. The world's policymakers now face a difficult task in trying to stop them spreading. The IMF's baseline projection forecast is excellent: world economic growth up a quarter of a percentage point to 5.1 per cent in 2006 and 4.9 per cent in 2007, continuing recent bumper growth. Yet the IMF is investing more emphasis in gloomier scenarios. That should not be a surprise: the cyclical recovery after the downturn of 2001 cannot last forever.

So the fund explores two key risks, one on the demand side and one on the supply side. The demand side risk is familiar: a sharp US slowdown, probably triggered by a tottering housing market. The IMF already forecasts that the weaker housing outlook will slow even its baseline forecasts, but a nastier house price crash, surely a possibility, knocks another percentage point off the fund's growth forecasts.