Thursday April 23, 03:54 AM
IMF sees deeper 2009 decline, weak 2010
By Veronica Smith
WASHINGTON, (AFP) - The International Monetary Fund forecast a severe global contraction this year, sharply downgrading its already bleak outlook from earlier this year.
The IMF projected the global economy would shrink 1.3 percent in 2009, saying the financial crisis was 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 semiannual World Economic Outlook (WEO) report.
The world economy was sliding into "the deepest post-World War II recession by far," and the outlook was "exceptionally uncertain," with risks weighing on the downside, the 185-nation institution said.
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.
The IMF also cut its forecast for 2010 by more than a full percentage point, predicting sluggish growth of 1.9 percent globally.
The grim report came as finance officials gather in Washington for meetings of the Group of Seven and Group of 20 Friday and this weekend's meetings of the IMF and its sister institution, the World Bank.
US Treasury Secretary Timothy Geithner, who will host the G7 and the G20, which includes the G7 and emerging market countries such as China and India, acknowledged the US was the epicenter of the global crisis.
"We bear a substantial share of the responsibility for what has happened," Geithner said in a speech to the Economic Club of Washington.
"But factors that made the crisis so acute and so difficult to contain lie in a broader set of global forces that built up in the years before the start of our current troubles."
Geithner struck a conciliatory tone in stressing the interdependence of the global system: "The rest of the world needs the US economy and financial system to recover in order for it to revive... Just as importantly, we need the rest of the world to recover if we are to prosper again here at home."
The IMF said the spreading downturn stemmed from a dramatic escalation of the global financial crisis last September following the collapse of US investment bank Lehman Brothers.
"Financial stabilization will take longer than previously envisaged, given the complexities involved in dealing with bad assets and restoring confidence in bank balance sheets," the IMF said.
The advanced economies would be hit 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 grow a weak 1.6 percent.
The US economy would contract 2.8 percent in 2009, while Japan's, the second-largest, would shrink 6.2 percent.
The IMF forecast contractions of 4.2 percent in the eurozone, 4.1 percent in Britain and 6.0 percent in Russia.
It slashed growth forecasts for powerhouses China and India, to 6.5 percent and 4.5 percent, respectively.
The IMF predicted a slow recovery next year, with the rate of contraction expected to "moderate" from the second quarter onward.
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.
"Achieving this turnaround will depend on stepping up efforts to heal the financial sector, while continuing to support demand with monetary and fiscal easing."
Olivier Blanchard, the IMF's chief economist, warned at a news conference that rising unemployment would "crest only towards the end of 2010."
On Tuesday, the IMF estimated that banks and other financial institutions would suffer losses of more than four trillion dollars in the turmoil.
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, according to the forecast.
The IMF warned of a difficult transition for the financial system and called on policymakers to take action "with a long-term vision of a healthy, efficient, and dynamic financial system."
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