World Economy To Shrink By 1 Per Cent

The International Monetary Fund (IMF) says the world economy will contract in 2009 for the first time since World War Two by between 0.5 per cent and 1.0 per cent and urged advanced economies to quickly resolve deep financial market strains.

In a report prepared for a meeting of Group of 20 nations last week, the IMF said it was still forecasting a modest economic recovery in 2010, but said restoring confidence was key and meant policymakers needed to urgently deal with distressed assets on banks' balance sheets.

The forecasts are substantially lower than the IMF projected in January when it saw world economic growth of 0.5 per cent in 2009.

“The prolonged financial crisis has battered global economic activity beyond what was previously anticipated,” said the report published on Thursday.

It said advanced economies are in a severe recession that will shrink their economies by a range of 3.0 per cent to 3.5 per cent in 2009, improving to around zero growth in 2010.

It said the United States economy would likely contract by 2.6 per cent this year, while the euro area economy would decline by 3.2 per cent in 2009.

Japan will likely suffer a 5.8 per cent contraction in 2009 and will continue to shrink in 2010 by 0.2 per cent.

Meanwhile, emerging and developing economies are slowing abruptly and likely to see growth taper to between 1.5 per cent and 2.5 per cent in 2009, recovering slightly next year to between 3.5 per cent and 4.5 per cent. “Capital account pressures are intensifying for many emerging economies, amidst a contraction in cross-border lending,” the IMF said.