Global economy set to decline 1.3% in '09, 1st recession since WW2.
WASHINGTON – The International Monetary Fund Wednesday forecast the global economy will contract a punishing 1.3 percent this year because the financial crisis is proving more entrenched than expected.
"The global economy is in a severe recession inflicted by a massive financial crisis and acute loss of confidence," the IMF said in its semi-annual 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 percent, but by March it had forecast a contraction of between 0.5 percent and 1.0 percent.
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 percent this year.
Emerging market and developing countries would generate weak growth of 1.6 percent.
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 stabilization 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.
"Growth is projected to reemerge in 2010, but at 1.9 percent it would be sluggish relative to past recoveries," it said.
The growth in 2010 would come entirely from the emerging market and developing countries, at 4.0 percent, while developed countries' economies were expected to stagnate.
But the IMF warned: "Achieving this turnaround will depend on stepping up efforts to heal the financial sector, while continuing to support demand with monetary and fiscal easing.
"The dominant concern is that policies will continue to be insufficient to arrest the negative feedback between deteriorating financial conditions and weakening economies, particularly in the face of limited public support for policy action."
On Tuesday, the IMF estimated the cost of the global economic crisis at more than four trillion dollars.
Banks and other financial institutions in the United States, the eurozone, Britain and Japan would have to write down a 4.05 trillion dollars in soured credit, according to an estimate covering the period from the onset of the financial crisis, in mid-2007, to 2010.
The crisis has slammed international trade, with volume expected to plunge 11 percent this year before eking out 0.6 percent growth in 2010.
Consumer prices in developed countries were under pressure and would fall 0.2 percent in 2009.
The IMF warned of a difficult transition for the financial system and called on policymakers to take actions "with a long-term vision of a healthy, efficient, and dynamic financial system.
WASHINGTON – The International Monetary Fund Wednesday forecast the global economy will contract a punishing 1.3 percent this year because the financial crisis is proving more entrenched than expected.
"The global economy is in a severe recession inflicted by a massive financial crisis and acute loss of confidence," the IMF said in its semi-annual 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 percent, but by March it had forecast a contraction of between 0.5 percent and 1.0 percent.
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 percent this year.
Emerging market and developing countries would generate weak growth of 1.6 percent.
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 stabilization 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.
"Growth is projected to reemerge in 2010, but at 1.9 percent it would be sluggish relative to past recoveries," it said.
The growth in 2010 would come entirely from the emerging market and developing countries, at 4.0 percent, while developed countries' economies were expected to stagnate.
But the IMF warned: "Achieving this turnaround will depend on stepping up efforts to heal the financial sector, while continuing to support demand with monetary and fiscal easing.
"The dominant concern is that policies will continue to be insufficient to arrest the negative feedback between deteriorating financial conditions and weakening economies, particularly in the face of limited public support for policy action."
On Tuesday, the IMF estimated the cost of the global economic crisis at more than four trillion dollars.
Banks and other financial institutions in the United States, the eurozone, Britain and Japan would have to write down a 4.05 trillion dollars in soured credit, according to an estimate covering the period from the onset of the financial crisis, in mid-2007, to 2010.
The crisis has slammed international trade, with volume expected to plunge 11 percent this year before eking out 0.6 percent growth in 2010.
Consumer prices in developed countries were under pressure and would fall 0.2 percent in 2009.
The IMF warned of a difficult transition for the financial system and called on policymakers to take actions "with a long-term vision of a healthy, efficient, and dynamic financial system.
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