IMF forecasts 2009 recession, European banks cut rates
Saturday, 8 November 2008
WASHINGTON, Nov 7 (AFP): The International Monetary Fund yesterday predicted advanced economies would shrink next year under pressure from a credit squeeze that forced a new round of European interest rate cuts.
In sharp downward revisions to economic projections made less than a month ago, the IMF said the advanced economies were now seen shrinking by 0.3 per cent in 2009, instead of the prior estimate of 0.5 per cent growth.
It lowered its global economic growth forecast by 0.8 point to 2.2 per cent.
"Prospects for global growth have deteriorated over the past month, as financial sector deleveraging has continued and producer and consumer confidence have fallen," the IMF said.
"In advanced economies, output is forecast to contract on a full-year basis in 2009, the first such fall in the post-war period," the 185-nation financial institution said in an update of its October World Economic Outlook (WEO) report.
Next year almost all the advanced economies would contract: the United States (0.7 per cent), Japan (0.2 per cent) the eurozone (0.5 per cent) and Britain (1.3 per cent). Only Canada would resist the downturn, with 0.3 percent growth.
The IMF chief economist, Olivier Blanchard, said the Washington-based institution would lobby the Group of 20 rich and emerging countries for a "global fiscal expansion."
IMF managing director Dominique Strauss-Kahn is to attend a finance chiefs meeting of the Group of 20 rich and emerging countries this weekend in Sao Paulo, ahead of a G20 summit convened by US President George W. Bush on November 15 in Washington.
Asked which countries would have the most scope and the most need for fiscal action, another IMF economist, Joerg Decressin, said the United States, "Europe and especially Germany," and China.
The European Central Bank and the Bank of England slashed their key interest rates in a dramatic escalation of efforts to stave off recession.
While the ECB's decision to reduce its main lending rate by half a percentage point to 3.25 percent was expected, the Bank of England's move to cut by a record 1.5 percentage points to 3.0 per cent stunned analysts who said it could indicate things were even worse than previously thought.
"The fear is now that the situation could be much more dire than first perceived," said Joshua Raymond, market strategist at City Index.
The British economy is on the verge of a recession after contracting in the third quarter for the first time since 1992 and the European Commission forecast this week a similar fate awaited the 27-nation European Union by year-end.
ECB president Jean-Claude Trichet did not rule out another cut: "I don't exclude that we could decrease rates again."
Two other European countries which do not use the single currency, Denmark and Switzerland, also lowered rates.
Canada's prime minister, Stephen Harper, said he would urge G20 leaders to make "selective improvements" to national financial regulations and to agree on "some degree of regulatory oversight and early warning at the international level ... not massive improvements."
Ukraine's leaders on Thursday hailed a 16.4 billion dollar (12.8 billion euro) stand-by loan approved Wednesday by the IMF.
"A resolute economic and financial policy will allow us not only to resist the global crisis but also to emerge stronger and more united," President Viktor Yushchenko said in a statement that called for "wide-ranging structural reforms."
Ukraine has been among the countries hardest hit by financial turmoil.
The IMF said it will hold a news conference later Thursday on the issue of a stand-by loan of 12.5 billion euros (16.18 billion dollars) for Hungary, where more than 3,200 people have lost their jobs as a result of the financial crisis, according to a letter to the IMF from Prime Minister Ferenc Gyurcsany.
In sharp downward revisions to economic projections made less than a month ago, the IMF said the advanced economies were now seen shrinking by 0.3 per cent in 2009, instead of the prior estimate of 0.5 per cent growth.
It lowered its global economic growth forecast by 0.8 point to 2.2 per cent.
"Prospects for global growth have deteriorated over the past month, as financial sector deleveraging has continued and producer and consumer confidence have fallen," the IMF said.
"In advanced economies, output is forecast to contract on a full-year basis in 2009, the first such fall in the post-war period," the 185-nation financial institution said in an update of its October World Economic Outlook (WEO) report.
Next year almost all the advanced economies would contract: the United States (0.7 per cent), Japan (0.2 per cent) the eurozone (0.5 per cent) and Britain (1.3 per cent). Only Canada would resist the downturn, with 0.3 percent growth.
The IMF chief economist, Olivier Blanchard, said the Washington-based institution would lobby the Group of 20 rich and emerging countries for a "global fiscal expansion."
IMF managing director Dominique Strauss-Kahn is to attend a finance chiefs meeting of the Group of 20 rich and emerging countries this weekend in Sao Paulo, ahead of a G20 summit convened by US President George W. Bush on November 15 in Washington.
Asked which countries would have the most scope and the most need for fiscal action, another IMF economist, Joerg Decressin, said the United States, "Europe and especially Germany," and China.
The European Central Bank and the Bank of England slashed their key interest rates in a dramatic escalation of efforts to stave off recession.
While the ECB's decision to reduce its main lending rate by half a percentage point to 3.25 percent was expected, the Bank of England's move to cut by a record 1.5 percentage points to 3.0 per cent stunned analysts who said it could indicate things were even worse than previously thought.
"The fear is now that the situation could be much more dire than first perceived," said Joshua Raymond, market strategist at City Index.
The British economy is on the verge of a recession after contracting in the third quarter for the first time since 1992 and the European Commission forecast this week a similar fate awaited the 27-nation European Union by year-end.
ECB president Jean-Claude Trichet did not rule out another cut: "I don't exclude that we could decrease rates again."
Two other European countries which do not use the single currency, Denmark and Switzerland, also lowered rates.
Canada's prime minister, Stephen Harper, said he would urge G20 leaders to make "selective improvements" to national financial regulations and to agree on "some degree of regulatory oversight and early warning at the international level ... not massive improvements."
Ukraine's leaders on Thursday hailed a 16.4 billion dollar (12.8 billion euro) stand-by loan approved Wednesday by the IMF.
"A resolute economic and financial policy will allow us not only to resist the global crisis but also to emerge stronger and more united," President Viktor Yushchenko said in a statement that called for "wide-ranging structural reforms."
Ukraine has been among the countries hardest hit by financial turmoil.
The IMF said it will hold a news conference later Thursday on the issue of a stand-by loan of 12.5 billion euros (16.18 billion dollars) for Hungary, where more than 3,200 people have lost their jobs as a result of the financial crisis, according to a letter to the IMF from Prime Minister Ferenc Gyurcsany.