Breaking News: IMF warns world economy to worsen

October 8, 8:26 PMAtlanta Politics ExaminerEric Ture Muhammad

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Global Economy in Peril World Agency Warns

The International Monetary Fund (IMF) today predicted "major global slowdown" amid financial crisis in their newly released World Economic Outlook (WEO). They warned the world economy "is experiencing a major downturn in the face of the most dangerous financial shock in mature markets since the 1930s.

The WEO projects global growth to slow substantially in the latter part of 2008, before beginning a modest recovery in the second half of 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," he lamented. "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," he 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. "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, said the report.

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.

"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.

Read the World Economic Outlook .