IMF slashes economic forecasts: Global recession in 2009 - Summary

Washington - The International Monetary Fund drastically cut its global economic forecasts on Thursday in the face of a growing credit crisis, predicting a recession in the United States and the world in 2009. In an update of its World Economic Outlook from October, the IMF said global growth would slow to 2.2 per cent in 2009, down from the 3-per-cent forecast made last month and from 3.7 per cent expected this year. Growth of under 3 per cent is rated by the IMF as a global recession.
Advanced economies as a whole will contract 0.3 per cent in 2009, which would be the first annual contraction for wealthy nations since World War Two, after the IMF predicted 0.5 per cent growth in its October forecast. The crisis lender expects 1.4-per-cent growth for wealthy nations in 2008.The US, the world's largest economy, will contract by 0.7 per cent and the euro area by 0.5 per cent in 2009. Japan, Germany, France, Britain, Spain and Italy will all face contractions of their economies next year, the IMF said.
Developing and emerging countries by contrast will continue to spearhead growth in the world, increasing 5.1 per cent in 2009. But that is still down from a forecast of 6.1 per cent made in October. Growth in the developing world was predicted at 6.6 per cent this year.
A global financial crisis has severely impacted the availability of credit around the world, curbing spending in wealthy nations and restricting poorer nations' access to foreign investment. The slowdown in demand has also slashed commodity prices that were driving growth in many developing countries.
"There has been a sharp worsening of credit conditions to emerging countries," said chief IMF economist Olivier Blanchard, adding that there was room for further interest rate cuts in a number of countries to boost growth.
Blanchard also called for global fiscal stimulus measures to be agreed at a summit of the world's 20 leading economies in Washington on November 15. If that happened, the IMF's predictions would be higher than they are at present, he said.
Blanchard said it was not "useful" to speak of a global recession, though he acknowledged the IMF's tradition has been to consider growth of under 3 per cent for the world a recession.
The IMF expects major slowdowns across Eastern Europe as well as Russia and the former members of the Soviet Union. Brazil's growth will slow sharply to 3 per cent next year from 5.2 per cent in 2008.
China's economy will continue to grow at 8.5 per cent in 2009, down from 9.7 per cent this year and 11.9 per cent in 2007. India's growth will drop to 6.3 per cent in 2009 from 7.8 per cent this year.