IMF: Global recession will cost $4 trillion | World| Breakings news and perspectives from around the globe | DW | 21.04.2009
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World

IMF: Global recession will cost $4 trillion

The IMF has calculated that the global financial crisis has cost the world economy more than $4 trillion (5 trillion euros). Not surprisingly, the United States is responsible for the lion's share of the debt

Stacks of dollar bills

US financial institutions are suffering the worst losses

In its Global Financial Stability Report, the International Monetary Fund (IMF) said US institutions were about half way through their needed write-downs, while their European counterparts are still lagging. Banks will bear about two-thirds of the write-downs, which are coming on $58 trillion of debt originated in the United States, Europe and Japan, the IMF said.

In its report, the IMF said financial institutions in the United States suffered the worst with losses totalling $2.7 trillion. That estimate is nearly double the IMF's original projection six months ago. The IMF estimates that Europe-originated loans and securities will cause $1.2 trillion in write-downs, with Japan adding another almost $150 billion.

Pension funds hard hit

In total, the IMF now expects about $4.1 trillion in losses worldwide before the financial crisis comes to an end. While banks will account for about two-thirds of figure, pension funds and insurance companies were also exposed. The IMF warned that US pension funds alone may face $200 billion in losses.

The IMF said that the current inability of banks to attract private money means that the crisis has deepened, and that governments may need to take bolder steps, including taking a major share or control of institutions.

Graphic with IMF logo and 4 trillion superimposed over real estate photo

The IMF calculates that the downturn will cost $4 trillion

Governments act to keep banks going

US and European governments, including Germany, have already plugged hundreds of billions of dollars into financial institutions. The German government, for the first time since World War II, passed a law early in April that will allow it to take over the troubled mortgage lender Hypo Real Estate.

The IMF said banks have only reported about one-third of the losses it has forecast, prompting the global lender to warn that many governments may need to nationalize more financial institutions. The IMF warns against protectionist measures though which would encourage banks to pull out of pull foreign investments.

The financial crisis began when the US mortgage market began collapsing in mid-2006. Since then, housing bubbles have collapsed in several European countries, particularly in Britain, Ireland and Spain. Japan's housing market started to become shaky last year.

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