IMF Says Global Growth Outlook Has Deteriorated

The outlook for global growth has weakened over the past month, according to the International Monetary Fund, with advanced economies now expected to see recessionary conditions during 2009.

In a report released Thursday, researchers at the IMF said global growth prospects have deteriorated in the past month because of continued financial-sector deleveraging and falling producer and consumer confidence. The IMF is projecting world output will expand by 2.2% in 2009, down from its October forecast.

"In advanced economies output is forecast to contract on a full year basis in 2009, the first such fall in the post-war period," wrote the IMF. "In emerging economies, growth is projected to slow appreciably but still reach 5% in 2009."  

Activity in advanced economies is now expected to contract by a quarter of a percent on an annual basis in 2009, down three-quarters of a percentage point from the October 2008 forecast. The usual definition of "recession" is two consecutive quarters of negative growth.

For 2008, the IMF is forecasting world growth to slow to 3.75%, compared to 5% in 2007.  The IMF said the U.S. economy will "suffer" from depreciating real and financial assets and tightening financial conditions, while Europe will also be hurt by tightening financial conditions and declining confidence. Japan is expected to see net exports decline.

"Financial conditions continue to present serious downside risk," said the IMF. The group called for more macroeconomic policy relative to what has been announced so far to aid the financial sectors.

"Room to ease monetary policy should be exploited, especially now that inflation concerns have moderated," said the IMF, noting that monetary policy may not be enough. The IMF said there should be a reinforced, clarified and better coordinated efforts to fix the financial markets, which would foster a quicker recovery of lending and thus demand.

"Depending on how much prospects worsen, the scale of current recapitalization efforts may need to be broadened," said the IMF.