Horrror news

cited from Malaysian insider

First full-year slump since 1940s, says IMF


LONDON, Nov 7 - In its bleakest assessment yet of rapidly worsening global prospects, the International Monetary Fund (IMF) predicted that industrial economies as a whole will shrink through next year by 0.3 per cent, in the worst such slump of the postwar era.

The IMF said that the toll imposed by the downturn across the West would sap the strength of the world economy and cut global growth next year to an anaemic 2.2 per cent. That is down 0.8 points from its last forecast, made only a month ago, and is below the 2.5 per cent threshold at which the world economy is judged to be in the grip of global recession.

Shares plunged on Wall Street, in London and across Europe as the IMF's grim prognosis fuelled alarm among investors about the economic peril now confronting the world.

In London, the FTSE 100 index plunged by another 258.33 points, or 5.7 per cent, to 4.272.41, leaving it down by more than a third so far this year. In New York, the Dow Jones industrial average of leading US blue chips sank by nearly 5 per cent, and the broader-based S&P 500 index fell by a similar percentage.

In Europe, Germany's Dax index sank 6.8 per cent, while France's CAC 40 closed down 6.4 per cent.

As leaders, finance ministers and central bank governors of the world's key Western and emerging market economies prepare for two weekends of crisis talks — with “G20” meetings in São Paolo this weekend and in

Washington next Saturday — the IMF urged governments to ramp up tax and spending measures to shore up global economic activity.

“There is a clear need for additional policy stimulus relative to what has been announced so far,” the fund said. “Room to ease monetary policy should be exploited.”

It said: “Financial stress is likely to be deeper and more protracted than envisaged in October.”

The fund's call for still more far-reaching measures to boost global growth came as it drastically cut its already dire forecasts for all of the world's big economies. It now predicts that the US economy will shrink by 0.7 per cent next year, compared with its October forecast of meagre 0.1 per cent growth. In the eurozone, GDP is expected to drop by 0.5 per cent, down from the fund's October expectation of a 0.2 per cent expansion. Germany's economy is expected to shrink by 0.8 per cent.

Britain is now forecast to bear the brunt of the global slump, with its GDP plunging by 1.3 per cent in what would be the worst year for the UK since the economy shrank by 1.4 per cent in 1991.

In emerging and developing countries, the IMF now expects growth next year of 5.1 per cent — down a full percentage point from its October view as the knock-on impact of the West's plight ripples around the world. Even China, the powerhouse of Asia, has had its forecast growth reduced to 8.5 per cent, from 9.3 per cent.

Olivier Blanchard, the IMF's chief economist, said that although action by the world's governments and financial authorities to stem the crisis had been aggressive and comprehensive, further flare-ups in the economic crisis were likely. “We can't be sure that there are no landmines left in the field,” he said.

Blanchard added that the spectre of Japanese-style deflation also loomed over the developed economies of the West, although he so far believed that the probability of such a trend, with prices generally falling on a sustained basis, was still small.

Blanchard cautioned that in some countries, such as the United States, where official interest rates now stand at 1 per cent, there was only limited room left to shore up activity with cuts in interest rates, so that governments would have to resort to using fiscal policy through tax cuts or public spending increases. “When you get to zero, you are done in terms of using interest rates,” he said. - Times of London