In the most severe recession since World War II, the global economy is projected to shrink by 1.3% in 2009, with a slow recovery expected to take hold next year, according to the International Monetary Fund’s (IMF) April World Economic Outlook (WEO) released on Wednesday.
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| L-R: IMF First Deputy Managing Director John Lipsky, IMF Managing Director Dominique Strauss-Khan and IMF Director External Relations Department, Caroline Atkinson show a presentation during a Press Conference at the beginning of the IMF-World Bank Spring Meetings, Washington DC. AFP PHOTO |
While the rate of contraction should moderate from the second quarter of 2009 onward, output per capita is projected to decline in countries representing three-quarters of the global economy. Growth is projected to reemerge in 2010, but at 1.9% it would be sluggish relative to past recoveries.
IMF Chief Economist Olivier Blanchard told reporters that the world economy was being battered by competing crosscurrents, with the collapse in confidence and demand continuing to pull the economy down and government stimulus measures and natural stabilization mechanisms pulling the economy up.
“This is not the time for complacency, and the need for strong policies, both on the macro and especially on the financial fronts, is as acute as ever. But, with such policies in place, there is light at the end of this long tunnel. World growth can turn positive by the end of this year, and unemployment can start decreasing by the end of next year,” he said.
Shift toward recovery
Although Mr Blanchard said that today “the first current strongly dominates the second,” he could see the balance shifting towards the end of the year, with growth in advanced countries becoming positive again in 2010, and returning to its normal level around the end of 2010.” Unemployment will crest only toward the end of 2010, however, and should decrease after that. Historical evidence presented in the WEO suggests recovery may be slower than in other recessions.
Two quarters of bad news
The WEO said the advanced economies experienced an unprecedented 7.5% decline in real GDP during the fourth quarter of 2008 and output is estimated to have continued to fall almost as fast during the first quarter of 2009.
Emerging economies too are suffering badly and contracted 4% in the fourth quarter of 2008 in the aggregate. The damage is being inflicted through both financial and trade channels, particularly to east Asian countries that rely heavily on manufacturing exports and the emerging European and Commonwealth of Independent States (CIS) economies, which have depended on strong capital inflows to fuel growth.
In parallel with the rapid cooling of global activity, inflation pressures have subsided quickly. Commodity prices fell sharply from midyear highs, causing an especially large loss of income for the Middle Eastern and CIS economies but also for many other commodity exporters in Latin America and Africa. |
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