labels: World economy
IMF portrays gloomy global scenario news
19 March 2009

An International Monetary Fund (IMF) update, due to be released next month forecasts the global economy would shrink 0.6 per cent in 2009, a further deterioration of 0.5 per cent compared to the January growth forecast. Every region, except Asia is expected to show negative growth.

IMF managing director Dominique Strauss-Khan has called the slowdown the ''Great Recession''. "This is a true global crisis, impacting all parts of the world and countries at different levels of development" his adviser Teresa Ter-Minassian said in Portugal.

Credit crunch and economic decline are hampering the recovery and the slump will not bottom out before mid 2010, said John Lipsky, first deputy director of the IMF. "The most pressing priorities are to stabilise the global financial system and provide effective stimulus to global aggregate demand," he told the gathering of oil ministers and energy executives at the OPEC seminar in Vienna on Wednesday.

"With effective policy actions, the global downturn can be curtailed, and a recovery can start to get under way."

Lipsky declined to comment on the 0.6 per cent contraction of world economy this year as forecast by IMF. Lipsky said it was too early to give a precise number before the IMF's next scheduled update. However, he indicated in his speech that global output was likely to fall for the first time in modern history this year.

Asked when the world economy would reach the trough, he said: "The question is, 'have we hit the bottom?' I'd like to be able to say so, but I don't think so. "The decline in global output will end some time around the middle of next year," he said.

Regarding oil prices, Lipsky said that the decline in oil prices since July was mainly a result of the deterioration of the global economic outlook, and that they would rise again as the economy recovers, but would not return to the peak of 2008.

"From this point of view, the possible role of overshooting in the recent price decline would appear to be relatively modest. The same is true for early 2008 - overshooting on the upside relative to fundamentals likely was modest."

The figures provided by IMF official Ter-Minassian indicate that Japan will be the worst hit leading economy with 5 per cent contraction in 2009. Britain's recession too could be deep and last longer with 3.8 per cent fall in output this year with a further 0.2 per cent drop in 2010.

Conservatives in Britain criticise prime minister Gordon Brown's economic model as being fundamentally broken. Britain could still be in recession at the time of the next general election, to be held by June 2010.

The eurozone economy was forecast to contract 3.2 per cent in 2009, and the US by 2.6 per cent, said Ter-Minassian.

Australia's  Westpac-Melbourne Institute Leading Index slipped to minus 3.1 per cent in January, a long way below its long-term trend of plus 3.2 per cent.

"The leading index is now in deeply negative territory consistent with contracting economic activity. There are only four occasions in the 49-year history of the index in which its growth rate has fallen lower," said Westpac economist Matthew Hassan. "Each of these was followed by a recession.'' It happened faster this time than in previous recessions, he said.

IMF on Wednesday downgraded Vietnam's growth to 4.75 per cent in 2009 from the 5 per cent forecasted in December after a routine assessment mission to the country.

Last year, Vietnam's GDP grew 6.2 per cent after a soaring 8.5 per cent in 2007.

IMF said that in the short term, there are substantial challenges to be faced due to adverse global economic environment. However, the medium term outlook for the country looks favourable and Vietnam would remain an attractive investment destination.

Vietnam has taken fiscal measures to stimulate growth. "Strategically they are on the right track," IMF special representative Bingham said.

Vietnam's deputy prime minister Nguyen Sinh Hung told that the country's economy should begin to recover by the end of this year.
India to take further measures

IMF expects 5.3 per cent growth for the Indian economy for the fiscal year 2009-10 compared to the 6.3 per cent  for the current year 2008-09. Inflation will come down to 3.4 per cent from the 7.8 per cent in 2008.

IMF has urged the Indian government to take further steps to secure the country's financial system from the global financial crisis.

"Rising credit risk and liquidity pressures could put the financial system under strain, while negative feedback loops between the real and financial sectors could turn out to be strong," the IMF said in an annual review of India's economy.

IMF is divided on whether the Reserve Bank of India should cut interest rates further to boost economic growth with some directors in its favour and some supporting RBI's wait and watch approach.

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IMF portrays gloomy global scenario