Severe Recession Ahead

Source : The Straits Times, April 23, 2009

IMF ON WORLD ECONOMY

WASHINGTON - THE International Monetary Fund on Wednesday forecast the global economy will contract a punishing 1.3 per cent this year because the financial crisis is proving more entrenched than expected.

The International Monetary Fund forecast the global economy will contract a punishing 1.3 per cent this year because the financial crisis is proving more entrenched than expected. -- PHOTO: REUTERS

'The global economy is in a severe recession inflicted by a massive financial crisis and acute loss of confidence,' the IMF said in its semiannual World Economic Outlook (WEO) report.

The IMF warned the outlook was 'exceptionally uncertain,' with risks weighing on the downside, in its assessment that the world economy was sliding into 'the deepest post-World War II recession by far.'

It was the third time the IMF has slashed its 2009 world growth estimate this year. In January, the multilateral institution saw growth of 0.5 per cent, but by March it had forecast a contraction of between 0.5 per cent and 1.0 per cent.

According to IMF economists, the global economic and financial crisis will hammer the advanced economies the hardest, with their gross domestic product (GDP) - a measure of a country's goods and services output - shrinking at an annual rate of 3.8 per cent this year.

Emerging market and developing countries would generate weak growth of 1.6 pe rcent.

The spreading downturn, stemming from a dramatic escalation of the global financial crisis last September following the collapse of US investment bank Lehman Brothers, would affect countries representing three-quarters of the global economy, it said.

'Underlying the downgrade to the current forecast is the recognition that financial stabilisation will take longer than previously envisaged, given the complexities involved in dealing with bad assets and restoring confidence in bank balance sheets, especially against the backdrop of a deepening downturn in activity that continues to expand losses on a wide range of bank assets,' the 185-nation institution said.

The grim report came as finance chiefs gather in Washington for this weekend's meetings of the IMF and its sister institution, the World Bank.

The IMF predicted a slow recovery next year, with the rate of contraction expected to 'moderate' from the second quarter onward. -- AFP