Global economy to shrink for first time in 60 years: IMF

WASHINGTON: The global economy will shrink for the first time in 60 years in 2009, the International Monetary Fund warned yesterday as EU leaders balked at growing US pressure to spend more to ease the crisis.

“Global economic activity is falling — with advanced economies registering their sharpest declines in the post-war era — notwithstanding forceful policy efforts,” the IMF said in a report. It slashed its forecasts to a global contraction of 0.5-1.0 percent, sharply lower than the 0.5 percent growth given only on Jan. 28.

The revision “reflects unrelenting financial turmoil, negative incoming data, sinking confidence, and the limited effect to date of policy responses with respect to the restoration of financial system health,” it said.

Advanced economies are expected to suffer “deep recessions” in 2009, shrinking between 3.0 and 3.5 percent, while growth will slow sharply in developing countries.

The IMF also warned that the Group of 20 developed and emerging major economies had not done enough to fight the recession. “Country responses to the global crisis are in an early stage… measures are still needed to restore financial stability,” the IMF said, adding that a projected 2010 recovery depended on comprehensive policy steps.

Meanwhile, EU leaders rejected US pressure to plough more taxpayer cash into their faltering economies ahead of a summit in Brussels yesterday.

German Chancellor Angela Merkel insisted in Parliament that the EU was already spending enough to fight the recession. “We are in the vanguard. We are contributing an above-average amount,” she said. “The current measures must work. We must allow their impact to develop.” The 27-nation European Union has adopted stimulus measures for 2009 and 2010 worth 400 billion euros ($520 billion), equivalent to 3.3 percent of the bloc’s gross domestic product. “I am against us Europeans (responding to) the American wish for a more voluminous economic recovery package,” Luxembourg Prime Minister Jean-Claude Juncker said.

Washington, citing its own efforts, has pressed its European allies in the run-up to a G-20 summit in London on April 2 to play a bigger role in reviving global demand by doing more to prop up their own faltering economies.