The
International
Monetary Fund (IMF)
today warned
that the world
economy is
experiencing a
major downturn
in the face of
the most
dangerous
financial shock
in mature
markets since
the 1930s, and
called for
strong and
coordinated
actions to avoid
worse-case
scenarios. The
IMF's latest
World Economic
Outlook (WEO)
projects global
growth to slow
substantially in
the latter part
of 2008, before
beginning a
modest recovery
in the second
half of 2009.
Growth in
advanced
countries will
be close to zero
until at least
the middle of
2009, while
growth in
emerging and
developing
countries will
slow to
substantially
lower rates than
in the recent
past. The WEO
projects global
growth at around
3 percent in
2009.
"The
world economy
has entered a
major downturn
after being hit
by two very
large shocks: a
surge in oil and
commodity prices
and the
expanding
financial crisis,"
said Olivier
Blanchard, the
IMF's Economic
Counsellor and
Director of
Research. "The
financial crisis
has clearly
gotten worse,
and no country
will be fully
immune from the
effects on the
real economy. It
is too late to
avoid a slowdown,
but strong and
coordinated
policies can
avoid even worse
scenarios. In
many countries,
plans are
already being
put in place to
help resolve the
crisis."
The recovery
measures include
both financial
and
macroeconomic
policies, Mr.
Blanchard noted.
"While
uncertainty
remains, we are
hopeful that
these measures
will contain the
crisis and
return trust to
the markets," he
said. "Restored
trust should
result in credit
coming back—although
it will come
back only slowly."
He said in
the short run,
systemic
financial
actions—from the
provision of
liquidity to the
purchase of
assets to the
injection of
capital, are key
to restoring
stability and
confidence in
financial
markets, while
monetary and
fiscal policies
in many
countries can
help soften the
effects of
decreasing
demand and break
the negative
feedback loop
between the
financial sector
and the real
economy. "With
such policies in
place, it is
reasonable to
expect recovery
to start in 2009
and gather
strength in
2010," Mr.
Blanchard said.
The WEO
projects global
growth year on
year will slow
sharply to 3.9
percent in 2008
from 5.0 percent
in 2007, and
continue slowing
to 3.0 percent
in 2009 (see
Annex for
2008-2009
forecasts). "The
advanced
economies are
close to
recession, and
the recovery in
2009 will be
exceptionally
gradual by past
standards," Mr.
Blanchard said.
The U.S.
economy is
slowing after a
relatively
strong second
quarter, as
support from
fiscal stimulus
has ebbed and
the impact of
the U.S. credit
crisis is
intensifying,
according to the
WEO, which
estimates the
U.S. will record
year-on-year
growth of 1.6
percent in 2008
and 0.1 percent
in 2009 against
2.0 percent in
2007. A
turnaround in
the housing
sector, and more
stable oil
prices, would
help lay the
basis for
incipient
recovery in the
course of 2009,
but the revival
is expected to
be much more
gradual than in
most previous
economic cycles,
as tight credit
conditions
continue to
weigh heavily on
domestic demand.
Most other
advanced
economies are
also expected to
go through a
period of
extremely
sluggish growth,
or even
contraction, and
experience only
a modest upturn
in 2009. The WEO
projects
advanced
countries in
aggregate will
slow to 1.5
percent
year-on-year in
2008 from 2.6
percent in 2007,
and ease further
to 0.5 percent
in 2009.
The WEO
projects growth
in emerging and
developing
economies will
continue
decelerating,
falling somewhat
below trend
during the
second half of
2008 to
year-on-year
growth of 6.9
percent, down
from 8.0 percent
in 2007. Growth
will moderate
further to 6.1
percent in 2009.
Inflation in
the advanced
economies is
expected to be
contained by a
combination of
increasing slack
and the
stabilization of
commodity
prices, and
could recede
below 2 percent
by the end of
2009. In
emerging and
developing
economies,
inflation is
projected to
remain around 8
percent at the
end of 2008,
before easing to
around 6½
percent in 2009.
"Policymakers
around the world
are facing the
daunting task of
stabilizing
financial
conditions while
nursing their
economies
through a period
of slower growth
and higher
inflation," Mr.
Blanchard said,
adding that
financial
markets and
institutions
must be placed
on a healthier
footing, and
supply-demand
responses in
commodity
markets must be
strengthened.
ANNEX
