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IMF Predicts Global Economic Contraction for 2009

sms/dpa/afp/apMarch 19, 2009

The global economy could shrink as much as 1 percent this year, the International Monetary Fund said, adding its voice to a chorus of economists predicting the first worldwide contraction since World War II.

Montage of the IMF logo and a dropping stock curve
The global economy can hope for improvement in 2010, the IMF saidImage: picture-alliance/ dpa/ AP/ Montage DW

As most wealthy nations suffer under deep recessions and a financial crisis driving down growth across the globe, the IMF slashed its forecast for 2009 to a contraction of between 0.5 percent and 1 percent. That is down from a January prediction of 0.5 percent growth.

"Global economic activity is falling -- with advanced economies registering their sharpest declines in the post-war era -- notwithstanding forceful policy efforts," the IMF said in a staff report made public on Thursday, March 19.

In a critical report ahead of next month's Group of 20 summit of the world's major economies, the international financial watchdog painted a depressing picture of the state of the global economy and said the government response has been too little and come too late.

The report warned that many governments had not spent enough public funds to stimulate demand and were responding increasingly with protectionist measures that will further drive down global trade.

US and European efforts to stabilize the financial sector at the heart of the crisis "still lack coherence and credibility," while deflation was becoming an increasing risk in richer nations, the report said.

Cautious outlook for 2010

A Japanese businessman walks in front of a stock price indicator board in downtown Tokyo
The outlook for Asia is particularly bleakImage: picture-alliance/ dpa

The IMF predicted a small recovery in 2010 to growth of 1.5 percent to 2.5 percent -- a level that is still considered a global recession by IMF standards. Whether even that forecast will hold up was placed squarely at the feet of government efforts to end the financial turmoil.

"In the event of further delays in implementing comprehensive policies to stabilize financial conditions, the recession will be deeper and more prolonged," according to the report, which was presented to G20 finance ministers meeting on the outskirts of London last week.

Leaders of the G20, a bloc that includes wealthy and emerging economies, will hold an emergency summit in London on April 2 to coordinate their efforts to halt the economic slide.

Cracks have emerged between the United States and Europe over whether the gathering should focus on short-term stimulus or broader financial regulation to stop future crises.

Euro zone contraction

A woman holding her head as a stock curve behind her drops
Without comprehensive policies, the recession could last longer than expectedImage: AP

The IMF slashed its growth predictions by at least 1 percent for all regions compared to its January forecast. The United States, the world's largest economy, will shrink 2.6 percent over 2009 and is unlikely to return to positive growth until the third quarter of 2010, the IMF said.

European countries that have adopted the euro will contract 3.2 percent this year and Japan's economic output will tumble 5.8 percent, wiping out the country's gains made over the last four years.

Emerging and developing countries will still post modest growth of 1.5 to 2.5 percent this year and recover to between 3.5 percent and 4.5 percent in 2010.

The report warned that ending the financial crisis was a "necessary condition" for the global economy's recovery.

The IMF said Europe should be more aggressive in adopting fiscal stimulus measures, especially for 2010 when the recession is expected to continue. Most European countries had fallen well below the public spending level -- 2 percent of economic output -- that has been advocated by the IMF.