-
Source: shutterstock.com -
Related
The International Monetary Fund said on Thursday the world
economy has fallen into a severe recession and predicts New
Zealand's economy will contract this year by 2%.
In its latest World Economic Outlook, the IMF said the global
economy would likely contract 1.3% this year in the deepest
post-World War II recession by far.
Growth is set to re-emerge to around 1.9% next year, a pace more
sluggish than average recoveries because of lingering strains in
the financial sector, it added.
Just three months ago, the IMF had projected global growth of 0.5% but two months later warned it would fall into deeply negative territory.
It now sees the British economy shrinking by 4%, Germany by over 5.5%, and Japan by over 6.0%.
Its forecast for New Zealand is sginificantly below the Reserve Bank of New Zealand's GDP forecast for 2009 of -0.8%.
However, the IMF expects New Zealand's economy to rebound sharply in 2010 to 0.5% compared with the Reserve Bank forecast of 0.2%.
It says only a recovery in developing and emerging market countries will propel the world economy back into positive growth in 2010, and even that will be at a weak level.
The Washington-based institution said its revisions to the
global outlook stem from assumptions that financial markets will
take longer than previously expected to stabilise.
The Fund warned that the turnaround depends on efforts by
governments to nurse the global financial sector back to health by
cleaning banks' balance sheets, and on additional fiscal and
monetary policies in advanced economies.
"A key concern is that policies may be insufficient to arrest the
negative feedback between deteriorating financial conditions and
weakening economies in the face of limited public support for
policy actions," the IMF said.
The IMF said stimulus measures should at least be sustained, if not
increased, in 2010, and it warned that premature withdrawal of
stimulus could set back a recovery.
It said interest rates in major advanced economies are likely to be
lowered to or remain near zero, and added that where there was room
for further easing, authorities should move quickly to cut interest
rates.
Epicenter of crisis
The IMF said the United States remains at the epicenter of the
crisis and said it is critical US authorities address mounting
toxic debt and uncertainty about banks' solvency.
It revised down its forecast for the US to a 2.8% contraction this
year and no growth in 2010 as the ravages of a credit squeeze,
falling house and equity prices and high levels of uncertainty play
out.
Meanwhile, the euro zone economy will shrink by 4.2% this year and
fall a further 0.4% in 2010, the IMF said, criticising the bloc for
weak public policy responses and coordination.
It said coordinating financial policy was especially necessary to
deal with problems building in Europe's financial systems, related
to deteriorating loan books, particularly for exposures to emerging
Europe.
It warned that the recession would be "particularly severe" in
Ireland and "quite severe" in the United Kingdom and that
unemployment in advanced European economies would rise above 10% in
late 2009 and keep climbing until 2011.
Emerging European economies were seen shrinking around 3.75% in
2009 and growing just 1% next year, compared with growth of 4% to
7% between 2002 and 2007.
The IMF said the Commonwealth of Independent States were worst
affected of all regions, facing a dramatic economic collapse as the
credit crisis, slumping demand and energy prices deliver a series
of painful blows.
It predicted the former Soviet economies would shrink by 5.1% this
year and grow by just 1.2% in 2010, compared with a solid 5.5% pace
of expansion in 2008.
In Asia, where countries are being harder hit by a drop in global
trade than by the financial crisis, the IMF said Japan's recession
would be far deeper than previously thought, while China's economy
will grow at a much slower pace.
For China, the IMF trimmed its 2009 growth forecast to 6.5% from
6.7%, which would be half the growth rate recorded in 2007, and
down sharply from last year's 9%.
It said the hard-won gains in Africa are being threatened by the
global downturn, which is reducing demand for African goods and
curtailing worker remittances.
The crisis also has not spared the Middle East, where the large
drop in oil prices is hitting the region and reversal of capital
flows are also taking a toll.
The same is true for countries in Latin America that are being hit
by commodity price drops and where the biggest threat is a
protracted financial deleveraging in advanced economies that will
lead to a prolonged halt in capital inflows, the IMF
said.
