Global economy to slow sharply
Report: IMF projects weak growth of 3%
The International Monetary Fund, in a World Economic Outlook released Wednesday, slashed growth projections for the global economy and predicted the United States — the epicenter of the financial meltdown — will continue to lose traction.
"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 in its report.
The IMF now projects that the global economy, which grew by a hardy 5 percent last year, will lose considerable speed, slowing to 3.9 percent this year. It is forecast to weaken even more — to just 3 percent — next year, marking the worst showing since 2002. In the past, the IMF has called global growth of 3 percent or less the equivalent to a global recession.
The IMF's projection was made before the Federal Reserve and other major central banks from around the world slashed interest rates Wednesday in an attempt to prevent a financial crisis from becoming a global economic meltdown.
Asked about the risk of the global economy getting stuck in a prolonged downturn, Blanchard responded: "I believe that the risk of a Great Depression is nearly nil."
The financial crisis, which erupted in the United States in August 2007 and has quickly spread around the globe, entered a tumultuous new phase last month, badly shaking confidence in global financial institutions and markets, the IMF said. It has triggered a cascading series of bankruptcies, forced mergers and radical government interventions — such as the United States' unprecedented $700 billion financial bailout — to stem the fallout.
The new projections come before a gathering of the world's top economic powers on Friday and the weekend meetings of the IMF and the World Bank. The jarring financial crisis is likely to figure prominently in those discussions.
In the United States, the economy, which grew by 2 percent last year, is projected to slow to 1.6 percent this year. Growth would screech to a virtual halt in 2009, barely budging at just 0.1 percent. That would mark the worst showing since 1991, when the country was pulling out of a recession.
"With a recession now looking increasingly likely, the key questions are, how deep will the downturn be, when will a recovery get under way and how strong will it be?" the IMF asked. Much will hinge on how effective the United States' steps to stabilize financial markets and get credit flowing more freely again turn out to be. Another important factor is whether these and other actions turn around U.S. consumers, whose retrenchment is hurting the economy.
Recent comments
The only thing wrong in America, 0-babacon ;ives in it to, and his…
Anonymous | Oct. 9, 2008 at 3:36 p.m.
Can you spell "Kondratieff?"
Red | Oct. 9, 2008 at 1:15 p.m.
Wow, OFP, that's quite a list of predictions! Be sure to write them…
Earl | Oct. 9, 2008 at 1:13 p.m.
