News Room - Business/Economics

Posted on 29 Jan 2009

IMF says global economic growth will slow to 0.5% in 2009

The embattled world economy is crawling to a halt under the financial crisis and would grow by only 0.5 percent this year, the 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 percent, a sharp downward revision from the negative 0.3 percent 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 epicentre of the financial crisis, would endure a 1.6 percent contraction, the IMF said, slashing its prior estimate of 0.9 percent.

 

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 percent in 2009 instead of the mild prior estimate of 0.2 percent. The world's second-largest economy would be in recession for the second consecutive year, following a 0.3 percent contraction in 2008.

 

The 27-member eurozone economy would hit a wall, suffering a 2.0 percent contraction after growing 1.0 percent in 2008. The previous 2009 estimate was for a 0.5 percent contraction.

 

Germany, Europe's biggest economy, would shrink by 2.5 percent this year after a 1.3 percent 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 percent, after 0.7 percent growth last year.

 

Of the major advanced economies, Canada would be the least affected, hit with a 1.2 percent contraction.

 

Developing countries were forecast to have relatively weak growth of 3.3 percent in 2009, about half the 6.3 percent expansion of last year.

 

China would remain the world's fastest-growing economy, putting in a 6.7 percent pace, down from 9.0 percent in 2008.

 

India's economic growth would slow to 5.1 percent after 7.3 percent.

 

To give the scale of the deepening recession, the IMF said the first annual global contraction during the post-war 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 percent.

 

"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." - AFP/de