World economy sits on brink of recession - IMF
October 12, 2008
By Wiseman Khuzwayo
Johannesburg - The world economy was teetering on the brink of recession, the International Monetary Fund (IMF) warned this week.
"We are on the cusp of a global recession," IMF managing director Dominique Strauss-Kahn said on Thursday.
He spoke in Washington in the wake of a decision by the US Federal Bank, the European Central Bank, the Bank of England, the Bank of Canada and Sweden's Riksbank to reduce their benchmark rates by half a percentage point. The unprecedented, co-ordinated action by central banks aimed to restore market confidence and contain the damage from the worst financial crisis since the Great Depression.
Strauss-Kahn was addressing a conference the day after the release of the IMF's World Economic Outlook report.
Olivier Blanchard, the economic counsellor and director of the IMF research department, said the world economy was facing a major downturn.
He said: "While there is exceptional uncertainty at this point, our best forecast is that world growth will be around 3 percent in 2009.
"Now, that number may not sound so bad. It hides, however, important differences between advanced countries, on the one hand, and emerging and developing countries on the other."
The fund projected that growth in advanced countries would be very close to zero or even negative until at least the middle of next year.
"World growth will instead be driven by growth in emerging and developing economies," he said. "We predict that even they will grow at a substantially lower rate than they have in the recent past: 7 percent in 2008, 6 percent in 2009."
Blanchard said that the slowdown meant inflation pressures would recede. In advanced economies, the decline in oil and commodity prices would bring down inflation pressures. However, underlying inflation pressures were still a concern in some countries.
The IMF says in its report that following sluggish growth through the remainder of this year and early next year, the anticipated recovery next year will be exceptionally gradual by past standards.
That is because financial conditions are expected to remain very difficult, even assuming that the US and European authorities succeed in stabilising financial conditions and avoiding further systemic events.
In advanced countries, the crisis was driven by a downward spiral in confidence and trust, said Blanchard.
The effects were spreading to consumers and firms that had weathered the price hikes in oil and commodities well, but were now experiencing sharply slowing demand.
Despite the cooling momentum of emerging economies, Blanchard said they were still expected to provide resilience, benefiting from strong growth in productivity and improved policy frameworks. But the longer the crisis lasted, the more their economic growth was likely to be affected.
|
|
