IMF sees greatest shock since 1930s
IMF sees greatest shock since 1930s
By Alan Beattie in Washington
Published: October 8 2008 16:14 | Last updated: October 8 2008 16:14
The financial crisis will drive down global economic growth to its lowest since 2002 with a big risk it will drop even further, the International Monetary Fund has warned.
Though Olivier Blanchard, the fund’s chief economist, said that the chance of another Great Depression was “nearly nil”, the IMF said that the US and European economies were mainly already in or close to recession.
“The world economy is now entering a major downturn in the face of the most dangerous shock in mature financial markets since the 1930s,” the IMF said. “The situation is exceptionally uncertain and subject to considerable downside risks.”
The fund said that global growth was likely to slow to 3.9 per cent growth in 2008 and 3 per cent in 2009, sharply down from 5 per cent growth last year. Some economists regard 3 per cent or 2.5 per cent global growth as equivalent to a world recession, given the trend rates of growth in the global economy, but Mr Blanchard said that such definitions were unhelpful.
Mr Blanchard said that Wednesday’s co-ordinated interest rate cuts from the major economies were “definitely a step in the right direction”, though declined to say whether more reductions would be needed in the short term. “More may be needed, and if so we hope it is done,” he told reporters. “Fifty basis points [cut] is not nothing.”
The IMF chief economist’s optimism that the world would avoid a repeat of the Great Depression of the 1930s was based on an expectation that governments would follow the right policies. European governments were having difficulty in coordinating their response to the crisis and more action was needed to shore up their shaky financial systems, he said.
The fund reduced its forecast for global growth next year by nearly a full percentage point, compared with its previous projection in July, with expected US growth for 2009 cut by 0.7 percentage points to 0.1 per cent – hovering just above a “full recession” of a year-on-year fall in growth rather than the narrower definition of “technical recession” of two successive quarters of a shrinking economy. Predicted growth for the eurozone in 2009 was cut by a percentage point to an increase of 0.2 per cent.
Emerging market economies, which have seen rapid falls in asset prices this week but have yet to bear the brunt of the slowdown in the real economy, would fare somewhat better, the fund thought.
The projection for Chinese growth next year was cut by half a percentage point to a still-healthy 9.3 per cent, and India was forecast to grow at 6.9 per cent. Charles Collyns, the deputy director of the IMF’s research department, said that India, being less open an economy than China and many of the industrialised economies, had strong internal drivers of growth which should shield it from the worst of the economic downturn.
Growth in sub-Saharan Africa, being also less exposed to financial turmoil, would slow to 6.3 per cent next year from 6.9 per cent last year, the fund said.
Copyright The Financial Times Limited 2008
By Alan Beattie in Washington
Published: October 8 2008 16:14 | Last updated: October 8 2008 16:14
The financial crisis will drive down global economic growth to its lowest since 2002 with a big risk it will drop even further, the International Monetary Fund has warned.
Though Olivier Blanchard, the fund’s chief economist, said that the chance of another Great Depression was “nearly nil”, the IMF said that the US and European economies were mainly already in or close to recession.
“The world economy is now entering a major downturn in the face of the most dangerous shock in mature financial markets since the 1930s,” the IMF said. “The situation is exceptionally uncertain and subject to considerable downside risks.”
The fund said that global growth was likely to slow to 3.9 per cent growth in 2008 and 3 per cent in 2009, sharply down from 5 per cent growth last year. Some economists regard 3 per cent or 2.5 per cent global growth as equivalent to a world recession, given the trend rates of growth in the global economy, but Mr Blanchard said that such definitions were unhelpful.
Mr Blanchard said that Wednesday’s co-ordinated interest rate cuts from the major economies were “definitely a step in the right direction”, though declined to say whether more reductions would be needed in the short term. “More may be needed, and if so we hope it is done,” he told reporters. “Fifty basis points [cut] is not nothing.”
The IMF chief economist’s optimism that the world would avoid a repeat of the Great Depression of the 1930s was based on an expectation that governments would follow the right policies. European governments were having difficulty in coordinating their response to the crisis and more action was needed to shore up their shaky financial systems, he said.
The fund reduced its forecast for global growth next year by nearly a full percentage point, compared with its previous projection in July, with expected US growth for 2009 cut by 0.7 percentage points to 0.1 per cent – hovering just above a “full recession” of a year-on-year fall in growth rather than the narrower definition of “technical recession” of two successive quarters of a shrinking economy. Predicted growth for the eurozone in 2009 was cut by a percentage point to an increase of 0.2 per cent.
Emerging market economies, which have seen rapid falls in asset prices this week but have yet to bear the brunt of the slowdown in the real economy, would fare somewhat better, the fund thought.
The projection for Chinese growth next year was cut by half a percentage point to a still-healthy 9.3 per cent, and India was forecast to grow at 6.9 per cent. Charles Collyns, the deputy director of the IMF’s research department, said that India, being less open an economy than China and many of the industrialised economies, had strong internal drivers of growth which should shield it from the worst of the economic downturn.
Growth in sub-Saharan Africa, being also less exposed to financial turmoil, would slow to 6.3 per cent next year from 6.9 per cent last year, the fund said.
Copyright The Financial Times Limited 2008
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