The world economy is about to collapse - that's the obvious conclusion to draw from the International Monetary Fund's latest forecasts, published in Washington today. Here's the reasoning: when the IMF's chief economist says "In sum, it would be fair to say to the world, you've never had it so good," then things can only get worse.

The world economy has a habit of going toxic just when everything is looking rosy. The IMF is predicting another year of bumper global growth. The last time things looked anywhere near this good was 1996 - when the world rejoiced at the unprecedented era ushered in by the fall of the Berlin Wall and the end of the Cold War at the start of the decade. You don't need a long memory to know what happened next - the Asian crisis and contagion, followed by the Russia's default and the collapse of mega hedge fund Long Term Capital Management. What goes up, must come down.

What could puncture the balloon? According to the IMF's director of research, Raghuram Rajan, in comments to a press conference here in Washington, rising oil prices, higher interest rates and/or volatile exchange rates (especially the US dollar) could all be the trigger. Yet even with oil prices at $70 a barrel, things still look pretty good. In any case, the event that gives the world economy a whack usually comes from the blindside. So what are the over-the-horizon threats?

First, there's Italy. Political and fiscal chaos and an economy going to hell in a hand basket, that's a combination that spells trouble, with the added bonus that Italy could derail the entire euro-train. "The policy challenges facing Italy are tremendous and need to be taken up almost on a war footing," said Rajan.

The other danger that is just a long-term blip on the economic radar is the collapse of the world trade talks. President Bush's decision to promote his current trade representative, Rob Portman, at a crucial stage in the latest World Trade Organisation talks, shows what a low priority the deal is to the US. Throw in cage-rattling US politicians over Chinese exports and Mexican migrants, and you have the recipe for a return to 1930s-style policies. "Economic patriotism is protectionist old wine in a mislabelled new bottle," said Rajan. "People tend to dismiss these as minor frictions, sand in the gears of the globalisation juggernaut. History, however, suggests the distance from economic patriotism to unbridled nationalism is a short one."

Or it could be something else that no one even imagines is a serious problem, like the collapse of the Icelandic krona or bird flu. Here's a killer fact: if the IMF's forecast is right, then this year will be the fourth year in a row in which global growth was higher than 4 per cent. The last time that happened was between 1970 and 1974 ... when the world economy promptly fell off a cliff for several years thanks to war in the Middle East, oil price hikes and high inflation. Hmmm.

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