International Monetary Fund further cuts growth forecast

Published by rudy Date posted on January 30, 2009

THE International Monetary Fund (IMF) said it has downgraded its growth projection for the world economy for this year as the financial markets remain under stress despite the policy measures introduced to provide additional capital and reduce credit risks.

In its World Economic Outlook (WEO) update, the so-called world lender of last resort said global economic growth would decline sharply to 0.5 percent this year compared with its earlier projection of 2.2 percent made in November last year.

This incorporates a large downward revision of 1+ percentage points for both advanced and emerging economies.

The advanced economies are expected to suffer recessions, as the IMF projects them to contract by 2 percent this year. It said emerging and developing economies are expected to grow by 3.3 percent.

“Financial markets are expected to remain strained during 2009,” the IMF said. It said the market conditions of the advanced economies would continue to be difficult despite restructuring in their financial sectors. Meanwhile, the financial conditions of emerging economies would likely remain acute especially for corporations, it added.

“The continuation of [the] financial crisis, as policies failed to dispel uncertainty, has caused asset values to fall sharply across advanced and emerging economies, decreasing household wealth and thereby putting downward pressure on consumer demand,” the report said.

At the same time, the disruptions in credit are constraining household spending and curtailing production and trade.

Emerging and developing economies are expected to slow sharply under the drag of falling export demand and financing, lower commodity prices, and much tighter external financing constraints, the lender said.

It, however, expects global economic recovery next year, reaching 3 percent, given the continued effort to ease credit strains as well as monetary and fiscal measures.

The IMF said monetary policy remains an important policy, adding a substantial increase in policy rates would support economic activities. The implementation of fiscal stimulus also would provide a key support to growth, it said.

Central banks in emerging economies are also moving to ease their policy stance and improve liquidity, it added.
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