January 28, 2009 2 Comments
The embattled world economy is crawling to a halt under the financial crisis and would grow by only 0.5 per cent this year slowest pace since World War II, the International Monetary Fund said on Wednesday.
“The world economy is facing a deep recession,” the IMF said in an update of November forecasts that shaved about 1.75 point off its prior global growth estimate. The IMF said the advanced economies were now seen contracting by 2.0 per cent, a sharp downward revision from the negative 0.3 per cent estimate two months ago.
“Despite wide-ranging policy actions, financial strains remain acute, pulling down the real economy,” the 185-nation institution said, warning the outlook was highly uncertain.
The United States, the epicenter of the financial crisis, would endure a 1.6 per cent contraction, the IMF said, slashing its prior estimate of 0.9 per cent.
Nonetheless, the world’s biggest economy would weather the financial storm better than most other major advanced economies. Japan’s economy would shrink by 2.6 per cent in 2009 instead of the mild prior estimate of 0.2 per cent. The world’s second-largest economy would be in recession for the second consecutive year, following a 0.3 per cent contraction in 2008. The 27-member eurozone economy would hit a wall, suffering a 2.0 per cent contraction after growing 1.0 per cent in 2008. The previous 2009 estimate was for a 0.5 per cent contraction.
Germany, Europe’s biggest economy, would shrink by 2.5 per cent this year after a 1.3 per cent expansion in 2008, according to IMF figures published six days ago. Britain would suffer the most, with gross domestic product (GDP) activity contracting 2.8 per cent, after 0.7 per cent growth last year. Of the major advanced economies, Canada would be the least affected, hit with a 1.2 per cent contraction.
Developing countries were forecast to have relatively weak growth of 3.3 per cent in 2009, about half the 6.3 per cent expansion of last year. China would remain the world’s fastest-growing economy, putting in a 6.7 per cent pace, down from 9.0 per cent in 2008. India’s economic growth would slow to 5.1 per cent after 7.3 per cent.
To give the scale of the deepening recession, the IMF said the first annual global contraction during the postwar period would have a cumulative output loss — relative to potential growth — comparable to the 1974-1975 and 1980-1982 recessionary periods.
“A sustained economic recovery will not be possible until the financial sector’s functionality is restored and credit markets are unclogged,” it said.
The IMF cautioned that “the uncertainty surrounding the outlook is unusually large.”
“Downside risks continue to dominate, as the scale and scope of the current financial crisis have taken the global economy into uncharted waters,” it said.
Assuming that the necessary measures will be taken to address the crises and they are effective, the IMF forecast the global economy would recover in 2010, with growth of 3.0 per cent.
“The main risk is that unless stronger financial strains and uncertainties are forcefully addressed, the pernicious feedback loop between real activity and financial markets will intensify, leading to even more toxic effects on global growth.”